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Investing in Insured Municipal Bonds
Investing in insured municipal bonds is a great way for you to diversify your portfolio while getting all the benefits these bonds offer. What are insured municipal bonds? They are municipal bonds that have been insured, so that the scheduled payments of both the interest and the principal have been insured to guarantee payment. These bonds offer almost no risk at all. If for any reason the issuing municipality can not make an interest or principal payment, the bond insurance company makes the payment instead. Municipal bonds have always been favored, because they are very safe and are tax sheltered. When the insurance is added, these bonds are the best way to guarantee a return on your investment.
Municipal bonds are issued by states, cities, counties, and specific authorities and agencies. There are thousands of these entities that issue bonds to get the money for public reasons, such as roads, schools, hospitals, and all other facilities for public use. These bonds are very safe, because the chances of a government entity defaulting on their debt obligations are extremely small. Municipal bonds are usually exempt from federal income taxes as well, so there are usually no tax liabilities associated with these bonds. Bond insurance is available for municipal bonds to guarantee the payment of both interest and principal. Insured municipal bonds are extremely popular with investments, and they are fairly liquid. This means that if you want to sell these bonds, there is normally a market for them.
Insured municipal bonds can protect you in two ways. The first is that these bonds protect you against any financial losses. If the bond issuer can not make the interest or premium payment, the insurer will make it instead. This means your investment is safe, and is protected against any losses. Insured municipal bonds are also guaranteed to keep from loosing their market value. This can happen if a municipal bond is not insured and the issuing municipality has financial difficulties. This is rare but it has happened, and if the municipality can not make the payment and there is no insurance, the value and liquidity of the bond may decrease. Insurance protects both your financial investment and the rating and quality of the bond as well.
Investing in insured municipal bonds are a terrific way to invest money that you do not want to lose. These bonds are insured, which means that they are guaranteed. Almost half of all new municipal bonds that are issued are issued as insured municipal bonds. These bonds are very popular with investors because of their safety and security. If the issuing entity has any financial difficulties, then the insuring company takes over making the payment. Municipal bonds that are insured are usually considered high yield municipal bonds, and they generally offer better returns than uninsured municipal bonds because of their security and stability. Insured municipal bonds have shown outstanding performance in the last few years, even at times when other investments have not performed well or when the market has been done for bonds in general. Insured municipal bonds are insured by companies who are considered monoline insurers. These insurance companies only insure investment grade debt securities. The do not offer home insurance, car insurance, health insurance, or life insurance. They specialize in bond insurance only, and because of this they are more stable. There is no reason to worry about other areas of insurance affecting the bond insurance part of the company. This is just one more reason that insured municipal bonds are such a good investment.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
|Bond Investment4 Dec 2008