What new investors need to know about municipal revenue bonds
Investors who wish to grow wealth through low-risk opportunities may wish to invest in bonds. A bond is a fixed-income instrument that is essentially a loan made by the investor to a company or the government in exchange for a return of funds plus interest by an agreed-upon date.
Bonds break down into a variety of subcategories in which you might be interested in investing. For example, government-issued bonds are available at the federal, state and municipal levels. It can break down even further from there, such as with municipal bonds that are available as general obligation bonds or revenue bonds.
What you need to know about municipal revenue bonds
Municipal bonds can essentially be divided into two groups:
- General obligation (GO) bonds — A GO bond is a municipal bond backed by the credit and taxing power of the issuer rather than the revenue earned by the project the bond is being used to fund.
- Revenue bonds — A revenue bond is a municipal bond that is backed by the revenue from the project the bond is being used to fund.
Revenue bonds are offered by municipal governments for many reasons. Often, they are used to fund services that are known to generate revenue rather than services that are solely for public use free of charge. For example, municipal governments may issue revenue bonds to fund a toll road or public utilities. In these circumstances, the returns generated by the bond are provided by the revenue earned by the tolls or utilities.
It is also worth noting that revenue bonds are issued specifically for projects rather than funding a branch or office for a variety of projects. The projects a revenue bond supports are not funded by taxpayers.
This means revenue bonds are an example of a high-risk investment.
Investors who hold revenue bonds can only rely on the project’s income as its source of revenue. If the project fails or underperforms, the investors are left holding the bag. However, with the higher risk comes the potential for higher returns. Revenue bonds typically pay higher rates of interest than GO, and if a project is successful, this will benefit the revenue generated for the bond.
Talk to a ProVise CFP® professional about investing in municipal revenue bonds
If you are an investor who is looking for ways to diversify your portfolio and generate high returns on investments, you might want to invest in municipal revenue bonds. However, this is a big decision that needs to be carefully planned as part of your financial strategy. This might be challenging on your own, but an experienced financial professional can help.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about investing in municipal revenue bonds or other types of bonds? Contact ProVise today to schedule a complimentary consultation.