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Financial Advisor
Dec 06, 2019

A Series 52 certification lets professionals trade municipal securities. Also known as the Municipal Securities Representative Qualification Examination, it’s one of the first steps toward a career as a licensed municipal securities representative. Here’s what the Series 52 covers and what its exam entails. Read More...

Financial Advisor
Dec 06, 2019

The Series 82 gives its holder the authority to conduct private securities transactions, among other activities. The exam is also known as the Private Securities Offerings Representative Exam. Private securities are investments only available for a select group of investors. Here’s how it all works. Read More...

Investing
Dec 06, 2019

Municipal bonds (or “munis”) are a fixture among income-investing portfolios. Investors who want a higher returns can invest in high yield municipal bonds. These bonds pay more than investment-grade counterparts, but are risky. There’s a realistic chance you’ll never get that money back. Here’s how they work. High Yield Municipal Bonds Defined A high yield municipal bond is issued by a government. It is either not rated by the major credit rating agencies or has been given a rating below investment grade. Ratings below BBB/Baa3 are generally considered not investment grade. While private entities can also issue high yield bonds, only state or local governments can issue high yield municipal bonds. A government generally issues high yield bonds to pay for projects with undefined or uncertain revenue. Communities will typically fund works like highways and schools with traditional bonds. However, they reserve high yield instruments for more speculative projects. As a result, high yield bonds generally produce considerably higher returns than investment grade bonds. For example, a modest selection of representative funds posted single-year returns in 2019 of between 6.5 % and 11.26%. Across the board, these instruments averaged a return of 4.9% in 2018 compared to an average rate of return of 1.49% for investment grade municipal bonds. Yet this return comes at a cost. High yield bonds also come with considerably greater risk than investment grade instruments. Default and non-payment is a risk with any instrument, even Treasury bonds, with most investment grade debt security this risk is trivial. When investing in high yield municipal bonds the risk increases. Research from Moody’s has found that as many as 6.5% of all high yield municipal bonds fail. High Yield Municipal Bonds vs. Junk Bonds When corporations issue high yield bonds rated below investment grade, they are typically known as “junk bonds.” Municipal bonds are not considered junk bonds, chiefly because they are much more stable than corporate bonds. Corporate junk bonds have approximately a 30% default rate. They also tend to pay higher coupon rates than municipal bonds. Meanwhile, they do not offer the tax-advantaged status of the latter product. While both are high yield, low-grade instruments, it is important not to confuse corporate junk bonds with high yield municipal bonds. High Yield Municipal Bonds vs. Investment Grade Investment grade municipal bonds are government issued debt that receives a credit agency rating of BBB/Baa3 or above. As a result they tend to pay considerably lower coupon rates than high yield bonds, which need to compensate investors for the risk of loss. The two types of securities have a few additional key points of comparison: Tax Free Returns on both high yield and investment grade municipal bonds are exempt from federal taxes. In some cases they are also exempt from state and local taxes as well. Risk Rate While investment grade municipal bonds have a low rate of default, less than 1%, high yield municipal bonds have a high one. At 6.5%, there is a meaningful chance that this investment will default. Risk Profile Because high yield bonds generally fund more speculative projects they are also more vulnerable to economic performance than traditional bonds. A bad economy can cause the government-funded underlying asset to perform poorly. Also, it could cause construction to fall through altogether, leading the bond to also potentially fail. This is a different risk profile from an investment grade municipal bond. Such bonds rarely move with economic factors. Secondary Market Most bonds are traded on the secondary market. Since high yield municipal bonds are a niche product, the market for this security is small. That makes them both semi-illiquid, as it is harder to sell this security in a smaller market. Also, it is more volatile, as prices ripple quickly through small markets. Securities If you are investing in an individual high yield bond it is important to look at what securities the underlying project has generated. Many construction-based bonds, for example, will secure the underlying funds with a lien on the land. Also, they may pledge to share the project’s future revenue or cover losses with increased taxes. Understanding this will significantly alter the risk profile of your bond. High Yield Municipal Bond Investing Individual investors will most likely invest in high yield municipal bonds through a mutual fund or an ETF. These bundled funds allow you to access the bond market without the specialized skill that it takes to trade those securities directly. Investing in high yield municipal funds can provide a few benefits to the average investor. Among others, they include: Income Generation A high yield municipal bond is often a strong choice for income investors. The coupon rate for this asset class is one of (if not the) highest among fixed income securities. Diversification High yield bonds respond to different economic pressures than investment grade bonds. The price of this asset class responds to economic pressure more easily than higher-grade bonds do. But, at the same time, its high rate of return makes it much less susceptible to depreciation or interest rate risk. This means that the high yield section of your portfolio will have a different risk profile than the investment grade bond segment. However, it will share some of its risk profile with your equities). Low Risk This asset class has a higher risk of default than investment grade bonds. However, it is still a safer bet than many equities and a far safer bet than corporate junk bonds. This can put high yield municipal bonds in a sweet spot of risk/reward for many investors. The Bottom Line It is important to consider that high yield bonds do come with significant risks. They have a realistic risk of default. Meanwhile, they’re also vulnerable. to economic conditions. That means bonds in this asset class are far less secure than debt securities typically are. Investors take a meaningful risk on this product, and it’s important to remember that. Bond Tips If you aren’t sure where bonds fit in your portfolio, consider consulting a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now. Investing in the bond market can provide your portfolio with a stable anchor to help offset your more speculative assets. You can find out where to start in SmartAsset’s guide to the bond investing. Meanwhile, high yield corporate bonds are just one type of bond. It’s important to understand the other types so you can know your options before you start investing. Of course, maybe you’d just like a better understanding of what a bond is. Photo credit: ©iStock.com/Maximusnd, ©iStock.com/designer491, ©iStock.com/AleksandarGeorgiev Read More...

Investing
Dec 06, 2019

Investors with an eye for growing economies can invest in emerging market funds such as a mutual fund and an ETF. Over the past 20 years, investors have found great success in countries such as China and India. These countries have had dramatic growth and investors have reaped exceptional returns buying securities linked to these economies. Here’s where to find emerging market funds and what to look for in such funds. Read More...

Editor's Picks

Taxes

Apr 19, 2019 Many people dread tax season. But if you're expecting a tax refund for the 2018 tax season (which you filed in 2019), you've got something…

Financial Advisor

Sep 10, 2019 "Chartered financial analyst" (CFA) and "certified financial planner" (CFP) are common certifications for individuals working in finance,…

Investing

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Financial Advisor

Apr 09, 2019 Fee-only financial planners earn compensation for their services only. They don't earn commissions or kick-backs for recommending certain…

Mortgage

Jul 23, 2019 If you’re young and you're looking to purchase a new home to live in, maybe you should consider turning your first home into an investment…

Data Articles and Studies

Checking Account
Mar 26, 2019

Tech jobs are particularly desirable, because they pay well, show long-term signs of growth and are less vulnerable to automation. But women have faced systemic difficulties in getting these jobs. And even when women do find jobs in the tech world, they earn 84% of what men in tech do, according to Census Bureau data, and thus have less opportunity to save. This is true at the national level, but there are some cities where parity between men and women in tech is less of a concern.  Read More...

Taxes
Mar 26, 2019

A large majority (75%) of taxpayers overpay on taxes and receive a tax refund, according to IRS data. A smaller proportion (19%) see the opposite: They will have overestimated their withholdings and learn they still owe the IRS some money. Apart from overpaying and underpaying, there is another small, exclusive group of savvy Americans who manage the Goldilocks fantasy: withholding just the right amount so, come tax time, the tax balance between them and the IRS reads an even zero. Read More...

Checking Account
Mar 26, 2019

Americans have greater than $800 billion in outstanding credit card debt, according to data from the New York Federal Reserve. What’s more, roughly 8% of credit card debt is delinquent by 90 days or more. If you’re someone saddled by debt and trying to avoid those lofty interest rates by paying it off, moving somewhere affordable with high-paying jobs is a great strategy. That allows you to accumulate money in your savings account so you can easily pay off any charges you rack up. Below, we rank the best places to get out of debt. Read More...

Videos

Personal Finance
Mar 14, 2019

Patrice Washington says she is an accidental personal finance blogger. Regardless, it’s a role she seems born to play, and one she’s certainly making the most of! Patrice is now much more than a personal finance blogger, she is a personal finance educator, author and advocate. You can see, hear and read Patrice pretty much everywhere from the Steve Harvey TV and radio show to her own books on personal finance. We caught up with Patrice in New Orleans for this edition of SmartAsset Talks. Read More...