801 West Bay Drive Suite 707 Largo, FL 33770

(727) 210-7795
marc.delia@premierplanninginc.com
Download Brochure
Premier Planning Partners Home
Premier Planning Partners Home
  • Home
  • About Us 
    • Meet Our Team
    • Financial Planning Philosophy
    • Business Philosophy
    • Investment Philosophy
  • Services 
    • A Blueprint for Business Succession Planning
    • Comprehensive Financial Planning
    • Levels of Partnership
  • Our News 
    • Premier Insights
  • Resources 
    • Retirement
    • Estate
    • Investment
    • Insurance
    • Tax
    • Money
    • Lifestyle
    • Glossary
    • Tax Resources
  • Contact
  • Account Access 
    • Client Login
    • Wealth Management Platform
    • American Funds
    • Lincoln Financial Group
    • Midland National
    • Nationwide
    • Ohio National
    • Symmetry Partners
Download Brochure
Investment Read Time: 4 min

All Muni Bonds Are Not Created Equal

The city of Detroit emerged from bankruptcy in 2014. Still, its previous inability to pay investors left some questioning their long-held assumption about the relative safety of municipal bonds. Without question, in the wake of Detroit's troubles, gaining a better understanding of municipal bonds makes more sense than ever.1

At their most basic level, there are two types of municipal bonds:2

  1. General obligation bonds, which are a promise by the issuer to levy taxes sufficient to make full and timely payments to investors.
  2. Revenue bonds, which are bonds whose interest and principal are backed by the revenues of the project that the bonds are funding.

Types of Risk

Both general obligation and revenue bonds share certain investment risks, including, but not limited to, market risk (the risk that prices will fluctuate), credit risk (the possibility that the issuer will not be able to make payments), liquidity risk (muni markets may be illiquid and result in depressed sales prices), and inflation risk (the risk that inflation may erode the purchasing power of principal and interest payments). They also may share call risk, the risk that a bond may be redeemed prior to maturity.

Revenue bonds are considered riskier than general obligation bonds since they are only obligated to make repayments to the extent that the project funded by the bond generates the necessary revenue to meet payment obligations.

Managing Risk

Investors seeking to manage their risk may want to consider investing in general obligation bonds with investment-grade ratings.

Bonds used to support essential services, such as water or sewage, are also considered less risky. These services are normally unaffected by economic conditions that may impact other revenue bonds, such as private activity munis, which fund projects by private businesses and other nongovernmental borrowers.

Because the financial health of any one municipality cannot be guaranteed, diversification may help counter some of the risk involved.3

Since municipal bonds generally are sold in increments of $5,000 and may be subject to disadvantageous pricing for smaller investors, many individuals look to mutual funds to manage their municipal bond portfolio, since they offer the diversification, research, analysis, and buying power that most individuals can't match.4

Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

1. Wikipedia.org, 2022
2. Investopedia.com, 2022. A municipal bond issuer may be unable to make interest or principal payments, which may lead to the issuer defaulting on the bond. If this occurs, the municipal bond may have little or no value.
3. Municipal bonds are free of federal income tax. Municipal bonds also may be free of state and local income taxes for investors who live in the area where the bond was issued. If a bondholder purchases shares of a municipal bond fund that invests in bonds issued by other states, the bondholder may have to pay income taxes. It's possible that the interest on certain municipal bonds may be determined to be taxable after purchase.
4. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if municipal bond prices decline.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |

Have A Question About This Topic?

Thank you! Oops!

Related Content

Take Advantage of These Business Tax Deductions

Take Advantage of These Business Tax Deductions

As a business owner, you have many opportunities to generate tax deductions throughout the year.

Breaking Down the Parts of Medicare

Breaking Down the Parts of Medicare

Medicare is broken down into four specific parts—but what do they mean? This article will help you understand each piece.

Dog Bites Neighbor. Now What?

Dog Bites Neighbor. Now What?

Even dogs have bad days. So, what happens when your dog bites a neighbor or passing pedestrian?

Contact

Office: (727) 210-7795

Fax: (727) 245-6900

801 West Bay Drive

Suite 707

Largo, FL 33770

Send an Email

Quick Links

  • Retirement
  • Investment
  • Estate
  • Insurance
  • Tax
  • Money
  • Lifestyle
  • All Articles
  • All Videos
  • All Calculators
  • All Presentations

Check the background of your financial professional on FINRA's BrokerCheck.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

We take protecting your data and privacy very seriously. As of January 1, 2020 the California Consumer Privacy Act (CCPA) suggests the following link as an extra measure to safeguard your data: Do not sell my personal information.

Copyright 2023 FMG Suite.

Terms of Service | Privacy Policy

This website is for educational or informational purposes. It is not intended as investment, legal, retirement or tax advice.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

The LPL Financial registered representative(s) associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.