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The Risks And Rewards Of Investing In Tax Free Bonds

Scott Colyer, Tax free bonds

With Scott Colyer, CEO and Chief Investment Officer at Advisors Asset Management

With over 28 years of industry experience, Scott Colyer has become a highly respected fixed income strategist and investment counselor on tax free bonds and other investments. He takes a truly strategic approach to portfolio management by focusing on macro and micro economic trends to navigate complex market cycles. His insights on municipal bonare  requently featured on several leading financial media outlets, including The Wall Street Journal and CNN Money. He has been CEO and Chief Investment Officer of AAM since 1998.

Scott talks about the municipal bond market, which has several (not all) tax free bonds where local investors do not pay taxes on interest earned.  With the U.S. economy improving across the board, Scott notes that municipal issuers have become stronger with a bounce back in tax collections and a vibrant economy that generates cash for municipalities to pay off their bond debts. And that’s good news for income seeking investors, especially those inclined to safer, more conservative, and less volatile investments – investments in school districts, utilities, etc.

Scott also believes investors should do their research before they buy, because sometimes (less than 1% of all issuers) municipalities tend to over-borrow in a declining tax and services revenue environment and get themselves and their bond holders in trouble. For example, Puerto Rico appears to have dug itself into a hol e with over borrowing, and will likely have to reach some settlement that will not deliver full principal to bondholders.

Scott also addresses some bonds that are insured, which are, of course, safer for investors. But investors likely pay a slight premium for this additional safety,  and that’s actually worth it because the guarantee of principal and interest returns makes these bonds lose less value and are more liquid (easier to buy and sell). So, overall, municipal bonds provide tax benefits and are safer investments. Scott also walks us through basic bond math, helps us understand the impact of interest rates on bond values, and how individuals can invest in municipal bonds.

I've been an investment strategist and adviser for over 35 years, leading with a mission of unbiased advice to educate and protect listeners on my weekly radio show on NPR affiliates nationwide. I have been named a “Top 100 Wealth Advisor” by Worth Magazine and “Top Advisor” by Reuters.