Investing in Tax Free Bonds

I know that in order to get the most out of my money, I need to make it work for me. That means investing in something that will generate a decent rate of return. The problem is that I’m extremely risk-averse. I do not want to lose my initial investment, and am willing to accept a lower profit in order to protect my money. That’s why I think tax free bonds are the perfect instrument for me.

Tax free bonds are usually ones issued by local governments. Generally called a municipal bond, cities or townships might sell these investment instruments in an effort to raise money for a specific cause. For example, my local government has offered tax free bonds to build a new sports facility at the public high school and to cover daily operations when there are budget shortfalls.

Tax free bonds of this sort can be short-term or long-term. The short-term variety might encompass a period of one year, and probably doesn’t offer investors a very high interest rate. The long-term variety could cover three or five years (or more), and typically give investors a better interest rate for locking their money up for so long. Unless you think your municipality will somehow end up bankrupt and unable to settle with creditors (i.e. bond holders) prior to the end of your bond’s term, then this should be a relatively safe investment.

The best part about tax free bonds, of course, is that I don’t have to pay taxes on any of the interest income I earn from my investment. This is a major draw for many people because it obviously means they can pocket their entire profit instead of having to set aside a portion of it for taxes. In this way, the effective yield of tax free bonds is essentially higher than other types in real terms because of the savings on taxes. Since I’m thinking about investing a relatively large amount of money, this is a key consideration for me.

These days it’s pretty easy to find good tax free bonds to purchase. I have been checking the Internet for municipal governments that are offering these investment instruments and am currently comparing all the different rates and terms. Once I figure out what the best deals are, I can start filling out the paperwork to make the transactions. Then all I have to do is sit back and wait for the interest payments to start coming in.

Clearly, I’m not too worried about liquidity, which is why tax free bonds are an excellent option for my portfolio. If you are not keen on tying your funds up for any significant period of time, then you should think about stocks or mutual funds. If security is your primary concern, then buy a bond today!

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