Investing In Bonds | How To Avoid The Pitfalls Of Investing In Municipal Bonds

I'll be the first person to say that investing in the stock market is very, very hard. Many speculators have you believe that investing can be easy, you can only push a few buttons on the computer to pick some stocks and do a lot of money, but I think we both know better than that!

Some people think that investing in bonds is a safer bet to invest in the stock market, and for the most part they're right. But there are some pitfalls that can get caught up, especially in the municipal bond market and that is exactly what I talk about in this article today.

Someone once told me that there is no such thing as a bad link ... long as there is one at a fair price! I guess that 's probably true, but the question arises ... What is the fair price?

Investing in municipal bonds can be difficult because it is often difficult to determine the correct price should be. Overall I think that bond ratings confuse the heck the average investor, because unless you "have taken an advanced finance or economics class in bond prices, then mathematics may be beyond you.

But don 't get lulled into a false sense of security because these bonds have a significantly higher risk that their state money market account even though the bonds are old simply boring. As risks go, they are much riskier than regular bonds, U.S. government U.S. bonds are backed by the full faith and credit of the United States Treasury, while municipal bonds aren 't supported by almost nothing. And yes, the municipalities do not go bankrupt all the time so be careful.

Here are some other risks that are involved have not thought for municipal bonds.

The first risk is the same risk that bonds have, and that is the interest rate risk. With bonds, when interest rates rise - the market value of the bond falls, because the bonds have an inverse relationship between performance and price. When the price goes up, performance declines, and when production goes up price goes down.

The risk is close by default, as I mentioned. It's true that defaults are not very common ... but the fact remains the same defect, can and do occur especially in times of recession as we are currently now in 2010.

Finally, many riders simply don 't specialize in municipal bonds and can handle it the wrong way. Check if your broker has a musical bond specific department and then only deal with them. If you don 't, consider a company that specializes in municipal bonds only for that portion of your portfolio.

Yes, there are risks in municipal bonds, but the tax benefits and higher returns usually outweigh the risks. As with any investment opportunity, make sure you do your homework before making an investment decision.