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Municipal Bond Brokers

By Edited Nov 13, 2013 0 0

Municipal bond brokers help investors purchase bonds and manage their portfolios to generate interest income. This relationship is similar to stock brokers or other bond brokers, but a dealer in municipal bonds deals in a financial instrument with a unique property - tax free gains. The ability to earn interest income that is not subject to taxes makes municipal bonds (or 'munis') an attractive investment. In the current economic climate with substantial stock market uncertainty, many investors are turning towards the reliable returns generated by bonds. Municipal bond brokers help an investor choose the right opportunity and can grow wealth, but they should not be allowed to operate blindly. An investor needs to know what to expect and what questions to ask to make sure their municipal bond broker is working for them and not just for himself. Municipal bond brokers and the product they sell are well worth a look. While the returns are lower than some other investments, the security and safety is generally much higher. For many investors this simple peace of mind offsets the lower rate of return.
 

Municipal bond brokers

A municipality can issue a bond for a variety of reasons and the return to investors is nontaxable on both the state and federal level. It is important that you invest in munis that are likely to stay tax free. That's right! Some municipal bonds are later deemed taxable by the IRS if the issuer fails to adhere to certain rules and regulations. The investor can then be on the hook for some unexpected taxes.

If you choose to invest in tax-free bonds through a mutual fund, make sure you choose a fund with a low turnover rate (generally less than 25%). This keeps the funds' trading fees low and means more profit at the end of the year. When starting a portfolio, make sure that you understand the annual maintenance fees charged by a broker for managing the portfolio, too.

The world of munis is less transparent than that of the stock market. Municipal bond brokers make their money by buying bonds at one price and selling to an investor at another. The spread between these two numbers are the profit for the broker. Unfortunately, these rates and fees are not usually disclosed. Remember that a municipal broker is not your friend, but has his own self-interest in mind, too. It is important to make sure you keep a broker honest by detailing how a transaction should be handled. This means telling the broker that on execution of a sale, you wish to see all sales of your bond on the day of your transaction as posted by the Municipal Securities Rulemaking Board. The knowledge that you will see comparable transactions may go a long way in keeping your broker from taking too large of a cut.

Municipal bond brokers can help diversify a portfolio and offer an investor a chance to earn tax free interest income. The smart investor should know how to monitor fees, turnover rate and selling fees. This will make sure that more money is put into your own pocket and less into the municipal bond brokers. Municipal bonds are well worth a look. While the returns are lower than some other investments, the security and safety is generally much higher. For many investors this simple peace of mind offsets the lower rate of return. Never forget too, that what appears to be a low rate of return can be higher than it appears once the tax savings is factored into the equation. This can be especially true in the world of zero coupon municipal bonds, which can be discussed with municipal bond brokers.
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