One of the main problems with traditional investing is that you seem
to have to either settle for a lower yield on local business investments
or give up the interactivity of knowing and influencing the factors
that affect your investment by purchasing shares in worldwide companies
or bonds created on a national level.
Luckily, there is an option that allows for a greater return than
some local stocks, bonds, and other investments while offering a chance
to make an investment in your own community. Municipal bonds can give
you the best of both worlds in this regard, and can be a sound
investment on top of that due to the fact that they are government
bonds.
The information provided below should give you an initial feel of
what municipal bonds and how they operate, helping you to decide
whether or not a municipal bond investment is right for you.
What Municipal Bonds Are
A municipal bond is defined as a bond that is issued by a state,
city, or other localized government which is used to pay for new
construction or some other special project. What this means is that a
local government issues a bond that individuals can purchase shares of
in order to finance a project that exceeds the local government's budget
for that sort of project. Like other bonds, the new municipal bond has a
date of maturity and a rate at which the value of the shares increase.
Once the municipal bond reaches maturity, the investors can cash
in their bond shares for their full value, the money for which being
allocated as part of the issuing local government's budget. Investment
in a municipal bond can be considered a type of loan, where the
investors are lending money to the local government in order to pay for
the project the bond was issued for and the interest paid upon the bond
is the interest that is paid by the local government on the loan.
Why Municipal Bonds Are Issued
As mentioned above, municipal bonds are usually issued in order
to cover the cost of new construction or other special projects that are
being conducted by a local government. The actual type of project may
vary, and may include surveys or statistical analysis, conservation or
environmental projects, or even the building of new roads or attempts to
improve industry, commercial property, and residential housing.
Municipal bonds may also be issued as a method for making up temporary
budget deficits or to fill other financial needs of the local
government.
Investing in Municipal Bonds
Making an investment in municipal bonds is much like choosing to
invest in other bonds, though they may be issued locally instead of
being publicly traded on a large stock exchange. Often municipal bonds
can be purchased at the city hall, capital building, or other hub of
government for the issuing city or local government. In most cases, the
investment opportunity will be listed in newspapers, tabloids, or other
financial papers that cover local financial news, though in the case of
larger cities that may be issuing municipal bonds the news might be
released over a much larger area. Former investors in a particular
locality's municipal bonds may be alerted when the bonds first are
available for purchase, though not all local governments follow this
practice.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Wednesday, December 26, 2018
Monday, November 19, 2018
Deciding Whether Stocks or Bonds are Right for You
There are a vast number of investment opportunities available to
potential investors, but not all of them are right for all purposes. The
most common types of investments are stocks and bonds. Stocks are
shares of individual companies, while bonds are government-issued
investment funds. Both can be great for starting in the investing
market, but you should know a little about the difference between the
two before making your investment.
Stocks
Stocks can help balance out a bond-heavy portfolio by providing diversification
Stock dividends also receive more favorable tax treatment than bond payouts.
If you make the decision that stocks may be the place for you to put your investment dollars, you must now determine the primary purpose of your stock investment.
The two primary stock investment goals are income and growth. You can have a combination of the two in one stock investment, but the features are almost never equal. In other words, although growth and income may co-exist in a particular stock investment, the investment choice you make should take into account the primary strength of the stock.
Growth Stock vs. Income Stock
Growth stock is stock in a company that doesn't pay cash dividends, but instead reinvests its profits into the company. The idea behind this strategy is that the company will continue to grow and become more profitable, driving the stock price up.
Income stock is stock in well-established companies that do not need to reinvest their profits into their companies and therefore use their profits to pay dividends to stockholders. Income stock is often more expensive because the income stream and security of the investment is greater.
Mutual Funds
Many investors invest in the stock market through mutual funds. Mutual funds are professionally managed and are easier to diversify your investments in, which makes them less risky than investing in individual stocks. You still have to research what type of stock will best suit your goals, but the average investor finds it less stressful to invest in the stock market through this method.
Bonds
Bonds, though some consider them "safer" than stocks, still come with risks. Some bond funds offer enticing payouts but may take big chances to do so, including venturing into lower-quality and longer-duration credits; if your funds' bonds lose value, you could see your principal shrink even though you're pocketing a healthy yield. Checking a fund's quarterly losses can be an easy way to see whether you could stomach a given fund's short-term losses. There's nothing wrong with making room for some higher-yielding bond funds around the margins of your portfolio, but consider these income-heavy funds to be side items because of their greater potential for volatility.
And while paying for high-quality financial advice can be money well spent, think carefully before paying a sales charge for a bond fund. If you're paying a 3.75% load to buy a bond fund (and that's a pretty low load), you're surrendering most of your first year's income payments from the get-go.
Individual Bonds vs. Bond Funds
Many investors prefer to invest in individual bonds rather than bond funds. While that's a reasonable tack if you're buying Treasury securities or perhaps even extremely high-quality corporate bonds, it makes sense to opt for a professionally managed bond fund for every other type of fixed-income security. Not only will a mutual fund offer you much more diversification (and therefore lower risk) than you could obtain by buying individual bonds, but smaller investors who are buying and selling individual bonds are also at a big disadvantage when it comes to trading costs.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Stocks
Stocks can help balance out a bond-heavy portfolio by providing diversification
Stock dividends also receive more favorable tax treatment than bond payouts.
If you make the decision that stocks may be the place for you to put your investment dollars, you must now determine the primary purpose of your stock investment.
The two primary stock investment goals are income and growth. You can have a combination of the two in one stock investment, but the features are almost never equal. In other words, although growth and income may co-exist in a particular stock investment, the investment choice you make should take into account the primary strength of the stock.
Growth Stock vs. Income Stock
Growth stock is stock in a company that doesn't pay cash dividends, but instead reinvests its profits into the company. The idea behind this strategy is that the company will continue to grow and become more profitable, driving the stock price up.
Income stock is stock in well-established companies that do not need to reinvest their profits into their companies and therefore use their profits to pay dividends to stockholders. Income stock is often more expensive because the income stream and security of the investment is greater.
Mutual Funds
Many investors invest in the stock market through mutual funds. Mutual funds are professionally managed and are easier to diversify your investments in, which makes them less risky than investing in individual stocks. You still have to research what type of stock will best suit your goals, but the average investor finds it less stressful to invest in the stock market through this method.
Bonds
Bonds, though some consider them "safer" than stocks, still come with risks. Some bond funds offer enticing payouts but may take big chances to do so, including venturing into lower-quality and longer-duration credits; if your funds' bonds lose value, you could see your principal shrink even though you're pocketing a healthy yield. Checking a fund's quarterly losses can be an easy way to see whether you could stomach a given fund's short-term losses. There's nothing wrong with making room for some higher-yielding bond funds around the margins of your portfolio, but consider these income-heavy funds to be side items because of their greater potential for volatility.
And while paying for high-quality financial advice can be money well spent, think carefully before paying a sales charge for a bond fund. If you're paying a 3.75% load to buy a bond fund (and that's a pretty low load), you're surrendering most of your first year's income payments from the get-go.
Individual Bonds vs. Bond Funds
Many investors prefer to invest in individual bonds rather than bond funds. While that's a reasonable tack if you're buying Treasury securities or perhaps even extremely high-quality corporate bonds, it makes sense to opt for a professionally managed bond fund for every other type of fixed-income security. Not only will a mutual fund offer you much more diversification (and therefore lower risk) than you could obtain by buying individual bonds, but smaller investors who are buying and selling individual bonds are also at a big disadvantage when it comes to trading costs.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
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