Municipal Securities

Municipal securities, often referred to as municipal bonds or munis, are debt securities issued by state and local governments, as well as various governmental agencies and authorities. These bonds are used to finance public infrastructure projects, such as schools, highways, water treatment facilities, and other community development initiatives.

Municipal securities come in various forms, including general obligation bonds (backed by the issuer’s taxing power) and revenue bonds (backed by the revenue generated from specific projects, like tolls or utility fees). They are typically considered relatively safe investments due to the historical low default rates of municipalities. Investors who purchase municipal securities may receive regular interest payments and, upon maturity, the return of their principal investment.

Additionally, the interest income from many municipal bonds is often exempt from federal income tax and, in some cases, from state and local taxes, making them particularly attractive to investors seeking tax advantages.

Reasons why municipal securities are important

Tax-exempt income: One of the primary benefits of municipal securities is that they offer tax-exempt income at the federal level and, in some cases, at the state and local level as well. This can provide a significant advantage for investors looking to maximize their after-tax returns.
Low risk: Municipal securities are generally considered to be a low-risk investment, as they are backed by the full faith and credit of the issuing government. This means that investors are unlikely to lose their principal, making municipal securities a popular choice for conservative investors.
Diversification: Including municipal securities in a portfolio can help to diversify an investor’s holdings and reduce overall portfolio risk.
Support for public projects: By investing in municipal securities, investors are supporting the funding of public projects such as roads, schools, and hospitals, which can have a positive impact on local communities.

Risks involved

Headline risk: Refers to the potential negative impact on the value or perception of an investment due to unfavorable news or events. For municipal securities, headline risk could arise from news stories about economic challenges, financial mismanagement, or other issues affecting the issuing municipality. Such news can lead to increased market volatility and potentially affect the securities’ prices.
Interest rate risk: Interest rate risk relates to the possibility that changes in prevailing interest rates can impact the value of fixed-income securities, including municipal bonds. When interest rates rise, the market value of existing bonds tends to decrease, as newly issued bonds offer higher yields. Conversely, when interest rates fall, the value of existing bonds may increase.
Low default risk and rate: Municipal securities, particularly those issued by financially stable municipalities, are often characterized by low default risk. This means that the chance of the issuer defaulting on interest payments or principal repayment is relatively minimal. This low default risk is reflected in the market perception of these securities and can contribute to their generally favorable creditworthiness.
Low default rate: Refers to the percentage of municipal securities that experience a default event, such as a missed interest payment or failure to repay principal. A “low default rate” indicates that the historical incidence of defaults among municipal securities has been relatively low. Municipal bonds are often considered less risky compared to corporate bonds due to their historically lower default rates.

Don’t settle for low returns on your investments. Explore taking advantage of the tax breaks that municipal securities can provide. With a low risk profile and tax-exempt income, municipal securities attempt to offer a smart investment option for investors seeking to grow their wealth over the long term. So why wait? Contact us today to learn more about municipal securities. Take the first step towards the possibilities of a more secure and prosperous future.

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Nortlov Securities LLC is a limited liability company based in Georgia. As a registered broker-dealer and member of the Financial Industry Regulatory Authority, Inc.