Considering Bonds? A Review of the August Municipal Market Commentary
In last month’s Municipal Market Commentary, I took a look at some questions that individual investors might be asking themselves and their financial counselors about maintaining and adding bonds to their portfolios in today’s market. The issue is particularly relevant right now, at a time when many market analysts believe we’re in for rising interest rates. The way that interest rates impact bonds, as highlighted in my A Look at Premium Bonds blog post from last week, is that prices typically fall when interest rates rise and prices will generally rise when interest rates fall.
Below is a summary of considerations I shared in that commentary:
1) Keeping bonds that are already in a portfolio
Bonds help provide income and, in the case of municipal bonds, tax-free income. Some considerations before making a decision to sell or continue to hold these bonds are:
- Can the income generated by those holdings be replaced?
- Does selling make sense in the current market, which is still at historically low interest rate levels?
2) Adding bonds to a portfolio
Meanwhile, investors that are considering if and when it’s the right time to purchase new bonds for their portfolio might want to consider:
- Is trying to time the market causing you to miss out on potential tax-free income?
- Is there an opportunity to pursue quality bonds offering the best return available to move your returns up from nearly 0%?
Learn more by chatting with your financial advisor about how bonds may work within your portfolio. It’s important to keep in mind that investing in bonds is just like any other kind of investment in that it involves risk, including a potential loss of principal. Income may be subject to state, local or federal alternative minimum tax.
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