Investing in a city or state can be overwhelming unless an expert is involved. Vanguard municipal bond fund can make the process easier in deciding where to buy from. There is some general knowledge about bond funds that will make the decision easier.
Municipal bonds are IOU’s by governments to help pay for projects for John and Jane Doe. There are three types of municipal bonds. General obligation bonds are supported by the issuer’s taxing entity, and payments are promised by that entity. Revenue bonds are bonds that are paid by a specific route of revenue, for example, tolls, rent, or other charges. These bonds are not promised by the entity that issued them. Insured bonds have an insurer that promises to pay the bonds if the original issuer defaults on the bond.
There are risks to buying municipal bonds. Bond prices are subject to change based upon the interest rate. Bonds carry the chance that the issuer will not be able to make payments on time. Generally, the lower the rating for a bond, the higher the risk, some municipal bonds carry additional stipulations for example, that the entity that issued the bond may redeem the bond before it is due, or that a set number of bonds must be redeemed at a time. Municipal bonds redeemed before they mature may be worth more or less, depending on when they are redeemed.
Vanguard offers multiple municipal bond funds. Most of the municipal bond funds available are state issued. Some bond funds may be short term, intermediate, or long term. Investors should pick their bond fund based on what their individual needs are. Investors should also be aware of what taxes are based on the bond fund they pick and where it is located.
Municipal bonds can offer a way to help improve a city or state. Vanguard municipal bond fund offers a way to do that securely and efficiently.
- Annuities Explained and How to Find Them (2009taxes.org)