Playbook #015: Munis (Municipal Bonds)
🖼️ The Big Picture
Ever wonder how state and local governments pay for new infrastructure like power generation, roads, sewers, hospitals, schools, town halls, and police stations (besides your hard-earned tax money, of course)?
Well, similar to Kevin O’Leary on Shark Tank structuring a debt-based deal where he loans money to a company in exchange for a strong interest rate (and usually an aggressive royalty)...
You can invest in Municipal Bonds with your local or state government. They raise money for their infrastructure projects, and you earn tax-free interest, making it a relatively safe and secure option, with reasonable returns (though you can forget about any Mr. Wonderful style royalties or equity here… that’s not an option.)
Interest is usually paid out semi-annually. Short-term bonds can mature (meaning your position is closed and you’re paid back your principal) in 1 - 3 years, and long-term bonds mature in a decade or longer.
Usually, your interest will be exempt from Federal Tax. It may also be exempt from State and local taxes if you live in the state where the bond is issued, which is where most investors choose to buy.
With relatively conservative returns and a high level of safety, this is a strong wealth preservation strategy, more suited to those who have acquired a fair amount of wealth.
As the current administration promises to raise taxes soon, wealthy people have been buying more municipal bonds as a way to create tax-free cash flow income streams.