Private Advisory Group

Minding the Safety of Your Bonds

Posted by Steve

One of the easiest mistakes to make with municipal bond investments is to take a ’set it and forget it’ approach to your investment. The perceived security with regard to municipal bonds has led many investors – and unfortunately, some of their financial advisers as well – into taking this approach. Let’s talk about some things that we can do to mind the safety of your municipal bonds.

Just like minding your health, let’s commit to regular checkups.

Some of the most risky bonds are ones that meet their payments only when the issuer sees economic growth. With economic growth effectively stalled for the most part, dozens of municipal bonds have defaulted in recent years specifically because the housing developments were never finished. Debt prediction based on growth is very tricky to get right even in a healthy economic climate. It’s downright impossible in this economic climate.

Let’s also commit to sticking with the basics.

Not all municipal bonds are equal when it comes to repaying investors. Bonds issued by established government entities are usually safer overall because when the issuing government gets into financial trouble, it has the ability to cut expenses or raise taxes to pay back the debt. Of course, this depends on whether their tax base – the local community – is able to sustain their current taxes, as we talked about in No Quick Turnaround, but it’s important to recognize that while tax payers will gripe about the taxes, they aren’t likely to suddenly stop paying them as long as they are employed.

Let’s commit to doing our own homework too.

Making time to review the business section can help us learn whether a bond-financed project is in trouble. While this kind of media attention doesn’t make the headline on our news station, it does show up in the local newspaper. Of course, we can also satisfy our curiosity about a project by taking a first-hand look at it, if it’s close enough to visit, or by making a simple phone call to ask how things are going.

Here at Private Advisory Group, we want to ensure the safety of your investments. By working together, we can keep your funds growing safely so they’ll be there when you need them.