How to Buy Municipal Bonds in California
Buying municipal bonds in California can range from an extremely easy to an extremely complicated process, depending on your investment objectives. If you simply seek secure, tax-exempt income, you can buy almost any insured California bond and not worry about anything else. If you seek capital appreciation, want to trade bonds or hope to maximize your income, you will have to take additional steps.
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Instructions
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Determine your investment objective and risk tolerance. California municipal bonds can range from conservative to speculative, from no-income to high-income. Once you decide what you want out of your bonds, you can narrow your search rapidly.
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Choose a maturity date. California municipal bonds can have maturities ranging up to 30 years or more. If you want to receive your money back in a particular year, choose a bond that matures in that year. If you want to maximize income, you will generally have to look at longer-maturity bonds. Understand that the longer a bond maturity, the more susceptible it is to moves in interest rates.
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Pick an acceptable rating. Most California municipal bonds are rated by outside agencies such as Standard and Poor's as to their creditworthiness. The top four ratings grades, AAA, AA, A and BBB, are considered investment grade and less susceptible to default. Bonds rated below this level are considered speculative or "junk" bonds and carry additional risk.
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Contact your adviser. Once you have determined a maturity range, an investment objective and an acceptable rating, look at the bonds offered by your financial services firm. Select bonds with the highest interest rates that satisfy your other requirements. Most firms have a specialist in municipal bonds, so you may want to consult him as well.
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Buy your bond. Once you select a bond, your adviser will get a quote for you from his bond department. Compare the price he offers with the prices of bonds with similar quality, interest rates and maturity dates, either in your adviser's inventory or at other firms. If you think he offers a fair price, buy your bond. Otherwise, enter an order at a price you are willing to pay, known as a limit order. You might have to wait hours, days or weeks before your limit order is executed.
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References
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