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Lower Your Investment Risk With a State Municipal Bond

Posted May 19 2010 10:07pm
If you want to begin investing but also want a low-risk option, consider a state municipal bond . A municipal bond is a form of investing that not only has the potential to give you a return but also promotes public interest. States may issues bonds as a way to raise the funds to build new schools, hospitals, bridges, or other buildings designed to help the community. For example, some states have built recreation centers for residents and conference centers as a way to attract tourism.

There are several key features to state municipal bonds that make them less risk than other forms of investing. The first is creditworthiness. Many independent credit rating sources give states better ratings than businesses. Another consideration is interest rate. With a fixed-interest rate bond, the state pays interest at set intervals. That means you actually start seeing money on your investment sooner rather than later. The yield can be more predictable for muni bonds, which lowers the risk. You know when the bond will mature and the schedule for payments. If you have a fixed-rate bond, you know exactly how much the payment will be.

Another thing to keep in mind if you are considering an investment in municipal bonds is whether or not you can find tax-exempt bonds. Usually issued by a government organization, like a state, you do not have to pay tax on the income you earn from the investment. Paying less in taxes means more money left in your pocket. Whether or not a municipal bond is a tax advantage depends on your income level and other factors. For example, you may have to pay tax on interest earned from a muni bond issued by a state in which you do not live, depending on your state income tax regulations.

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