Municipal Bond
Candlefocus EditorGenerally, municipal bonds come in two forms: general obligation (GO) munis and revenue munis. GO munis draw funds from taxes collected on the project on which they are issued, while revenue munis generate cash flows from the project itself. Both forms of munis are typically used to finance larger-scale public works, for example, state-wide roadworks, bridges, or public parks.
In addition to offering a lower rate of tax, municipal bonds also offer a number of other benefits. For example, they are less volatile than corporate bonds and since they are backed by government entities, they are generally viewed as being relatively safe investments. As a result, munis can be a powerful tool in the pursuit of steady, long-term wealth.
Perhaps the most attractive aspect of munis is the fact that they allow individuals to invest in their own communities. Investors who purchase local munis are essentially investing in the future of their state or city; in a very real sense, they are helping build the community of which they are a part. Furthermore, their investments can generate a steady income stream, making them a great retirement tool.
Municipal bonds are a relatively safe and highly tax-efficient way to invest, and can offer an excellent return on investment. Although the security of such investments must always be weighed against their risk profile and the unique characteristics associated with each project, for many investors, munis can be a great tool for long-term wealth building.