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7 Reasons to Invest in Insured Municipal Bonds

  • Investing in the municipal bond market offers many benefits if the bonds you choose are insured
  • An insured tax free municipal bond offers many tax advantages for your investments
  • Municipal bond ratings will determine whether a bond can be insured or not, because only the highest rated and quality bonds are eligible for the insurance coverage

1. Guaranteed Interest And Principal Payments By The Insurer Are One Reason To Invest In Insured Municipal Bonds

Insured municipal bonds on the municipal bond market are guaranteed. If the bond issuer can not make the interest or principal payments for any reasons, the insurer will step in and make the payments to the bondholder instead. This guarantees these payments, so even if the company defaults you will receive your scheduled payments right on time. This makes these bonds risk free from the prospective of an investor, so this benefit is one of the biggest reasons you should invest in insured municipal bonds instead of other investment types.

2. Portfolio Diversity Is Important, And Insured Municipal Bonds Can Help With This

Investing in the insured municipal bond market offers many benefits, and one of these is the guaranteed municipal bond yield. A diverse portfolio is very important to prevent catastrophic losses with your investment capital, and using a tax free municipal bond asset class can help your portfolio experience less risks and better returns. With diversity in your investment portfolio, even if some of your investments lose money your complete portfolio should see at least small gains, because other areas of the market will perform very well.

3. Insured Municipal Bonds Offer A Better Yield Than Bonds Which are Not Insured

Because municipal bond ratings can have an effect on the yield of the bonds, insured municipal bonds offer a slightly higher yield and return on investment than municipal bonds which are not insured. This is because the insurance gives the bonds a better rating, and this in turn translates to a slightly better yield usually. If you are looking for municipal bonds to invest in, it is better to choose those with insurance.

4. A Tax Free Municipal Bond Offers Tax Advantages

Investing in a tax free municipal bond that is insured offers significant tax advantages over other types of bonds. These bonds are exempt from federal taxes, making your investment worth more. If you live in the state or city that issued the insured municipal bond you are investing in, you may also be exempt from these taxes as well. These tax advantages can really add up, so it makes sense to invest in these bonds.

5. Insured Municipal Bonds Enjoy More Liquidity

Because the municipal bond ratings for insured municipal bonds are higher, these bonds have a better liquidity than some other bond types. The payments are guaranteed by the insurer, so many investors are willing to buy this type of bond from you very quickly. This means you can easily convert this investment to cash without having to wait extended periods of time. Part of your portfolio should include assets which are highly liquid, and municipal bonds that are insured fill this category nicely.

6. Insured Municipal Bonds Are Very Low Risk And Conservative

Because the payments on these bonds are insured by a third party, there really is no risk involved in investing in them. This makes them very conservative, and perfect for long term investing strategies such as retirement, where you do not want to risk any of your investment capital even if it means possibly finding a higher municipal bond yield but taking higher risks as well. These bonds can help you protect your capital and guarantee returns on your investment.

7. Insured Municipal Bonds Offer A Higher Quality Bond Investment

Before a municipal bond can be insured, whether it is a tax free municipal bond or another type, the quality and creditworthiness of the bond and the issuer are verified. Only high quality bonds with the best ratings can be insured. Investing in insured municipal bonds allows you to invest in the highest quality bonds possible, so your investment is protected and you do not suffer losses.

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.

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