Managing Your Municipal Bonds
You can manage your municipal bond portfolio yourself, or you can hire a professional manager, some of whom specialize in municipal bond management. A professional manager will have experience and expertise in the bond markets and study trends that help them choose the best bond investments for their clients. Whether you’re managing your portfolio yourself or seeking the help of a professional, you’ll need to examine your income, what return you expect to see, your needs for your personal lifestyle and your short-term and long-term financial goals.
Understanding Municipal Bonds
In order to manage your portfolio properly, you need to understand the basics of what municipal bonds are and how they work. Municipal bonds are sold by state, county and city governments to raise money for public projects such as schools and highway work. If you buy a municipal bond, you become a lender to the government and you’ll be paid interest on your loan. The bond will have a maturity date at which time the government will pay back the original loan amount. When managing your municipal bonds, you need to know if the income from the bond is tax exempt (most municipal bonds are).
Risk and Payoff with Municipal Bonds
Municipal bonds are considered to be a safe investment. However, there are risks such as fixed interest rates and the bond being paid, or called, earlier than the original maturity date. Once you understand the risks of buying municipal bonds, you should examine what your reasons are for the investment and what risks you’re willing to take. A bond can tie up your money for years, so make sure you won’t need that money for some other purpose. But along with risk comes payoff, and if you successfully manage your municipal bond portfolio, you can be rewarded with a good return on your investment.