Core Advantages of Single Issue Muni Bonds
I get lots of questions from investors who have heard about single issue bonds, but who don’t really understand what kinds of benefits they offer. So to help demystify this type of investment, here are three advantages of single issue bonds:
- A maturity date: To any moms or dads with teenagers at home reading this, sorry to get your hopes up – a maturity date is not the day that Junior will start cleaning his room without you pestering him. It is the date when you will get back the principal amount for your single issue bond. Having a maturity date also defines how long you will receive interest payments for, so it can be extremely helpful when planning for the future.
- A constant coupon: The coupon clearly defines what the interest rate of the bond is when it’s issued. Wonder why it’s called a coupon? When bonds used to be physically distributed, the coupons came attached. The investor needed to turn the coupons in to receive the interest due. Today, thankfully, most bonds and records are managed electronically instead, but the coupon terminology remains.
- A constant yield: This calculates and gives investors a clear understanding on what they’re going to get from a bond. Using the constant yield methodology typically results in a lower tax liability than using a ratable accrual method would.
Essentially, single issue bonds tell investors what they are going to get and when they are going to get it. By taking some of the guess work out of the investment, single issue bonds help investors have more control over plans for the future.
Remember, there’s no one-size-fits-all solution to investment plans. Any investor assumes risk – potentially losing the principal amount – and past financial performance doesn’t guarantee future returns. What it really comes down to is: What are you looking for? What are your goals and what is your appetite for risk? Single issue bonds are just one of the many choices available for you and your financial advisor to consider together.
The information provided is not an invitation to invest in any products or services or otherwise deal in any of these or enter into a contract with Hennion & Walsh or any other company. The information provided should not be relied upon in connection with any investment decision. You should not act upon any information contained herein without first consulting a suitably qualified financial or other professional advisor.