Sophia Rose goes back to school this week; I can’t believe our summer is over. I may be the luckiest mother in the world to have a daughter I enjoy so much. I will miss her during the day now and a few of you probably will too as she was a fixture in the office the past few months.
It’s time to focus on gettin’ educated and municipal bonds are back in the news and the top of my “things to understand” list.
Understanding Current Conditions
Russ Wiles of the Arizona Republic wrote an excellent summary of the current state of the municipal bond market in Sunday’s paper. The bullet points below come from his article:
Default risks have risen modestly; majority of municipalities will keep paying interest and principal payments.
Few municipalities have the challenges faced by those in California.
Leadership matters; leaders and lawmakers need a responsible view to avoid default drivers like these:
“-Liabilities from project originally conceived as self-supporting.
-Debt that was used to finance non-essential projects.
-Political infighting that inhibits financial management.
-Unsustainable trends of spending outpacing revenue.” ~Moody’s
As with all investing, one must weigh the risks to the reward. Tax-free income opportunities and the occasional chance for capital appreciation from these bonds must be compared to potential loss of principal due to default, rising interest rates or failure to hold to maturity. Interest income can sometimes be subject to the alternative minimum tax and although municipal bond interest income is federally tax-free, state and local taxes may apply.
I still like this sector right now and welcome the opportunity to explain ways in which risks may be managed and whether it’s appropriate for you.
Just let me know when you want to view muni’s more closely.
Until next week,
Susan R. Linkous
Securities offered through LPL Financial
Member FINRA and SIPC