Why Add Municipal Bonds To Your Portfolio

Playing the stock market can bring great long-term rewards, but there is also risk involved. If you are looking for a new way to start investing, perhaps it's time you took a look at tax-free municipal bonds. Here's why these bonds might be the right choice for your investment portfolio.

Exempt From Federal (and Sometimes Other) Taxes

Always read the fine print when getting into a new kind of investment, but in general, one of the reasons why municipal bonds are popular when rounding out a portfolio is that they are often exempt from federal taxes when sold. In some cases, they may also be exempt from state or even local taxes. This can help pad your returns on the investment when it's time to cash out. The more you can lower your taxes and investment fees, the better off you will be in the long run.

Conservative But Steady

The stock market is probably your best bet when you want to swing for the fences, but every good investor should have some more conservative options to fall back on. Municipal bonds aren't going to set the world on fire when it comes to returns, but it's also difficult for you to lose your initial investment. Adding these bonds to your portfolio will give you something to hold onto when the rest of your investments are down for the day, month, or year.

Get Further Diversification Through a Fund

While you can seek out just one or two municipalities that offer these bonds, you might be better off seeking out a fund that combines dozens or hundreds of municipal funds into one investment. A tax-free bonds adviser can help you pick the best ones. This will add further diversification to your portfolio and will limit your exposure in the event one of the towns or cities involved defaults on its bonds. This will be offset by the dozens or hundreds of other bonds that are doing just fine.

Municipal bonds are a conservative investment, but they are also a great way to round out your investment portfolio. The fact that the money you earn on these bonds is often free from federal and sometimes even state or local tax makes it a worthwhile option for any investor. Talk to a local investment adviser who specializes in tax-free bonds to get into your first fund today.

For more information, contact a tax-free bonds adviser like Alan Z Appelbaum