Bonds that are issued by the federal government are called treasury bonds, and local and state governments may also have municipal bonds. The state of Texas is one of these entities that offers its own bonds. If you are interested in municipal bonds from Texas, you can find a good amount of information on the Texas State Securities Board website. As an introduction, when you purchase a municipal bond from a state, you are lending money to the government. Until the bond matures, you should be receiving some income and, hopefully, tax benefits.
Municipal Bonds: Texas
Municipal bonds can be an essential part of a balanced investment plan, since they are less volatile than stocks. A financial advisor can assist you in determining whether municipal bonds are the right fit for your portfolio. Municipal bonds are categorized as fixed-income investments, since the government agrees to pay a predetermined, fixed amount of interest regularly. When the bond matures, the government will pay back the face value of the bond to the owner.
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As is the case with other bonds, you can purchase Texas municipal bonds through full-service brokers, investment apps and bond dealers. New-issue bonds are sold on the primary market, and they are also traded on the secondary market. You may have the option to buy them individually or as part of a mutual fund.
The two kinds of municipal bonds in Texas are general obligation (GO) backed by the "full faith and credit" of their issuers, and revenue bonds, which are supported with usual fees generated by government projects like toll roads. GO bonds are thought to be safer since local governments can raise taxes when needed to prevent defaulting.
Best Municipal Bonds in Texas
The writers for Barron's post that the Texas Permanent School Fund is a real standout in the municipal bond market. It backs billions in debt from 800+ Texas school districts and has a triple-A rating from Standard & Poor's and Moody's Investors Service. A municipal bond strategist from Janney Montgomery Scott said that this fund ranked in the top tier of credits, and its ratio of guaranteed debt to assets was less than 2 to 1.
In general, Texas municipal bonds are thought to be some of the highest-rated ones in the country. They boast high cash-to-debt ratios, moderate outstanding debt and positive outlooks for future earnings. Municipal bonds also have an added advantage: The interest payments are exempt from federal income taxes. And when the purchasers live in the same state where the bonds are issued, the interest is also exempt from state income taxes.
Should I Invest in Texas Bonds?
Investors who live in Texas can reap significant tax benefits (Texas has no state income tax, either) from Texas municipal bonds, but what about those who live in other states? The team of experts at Schwab points out that people who live in states with low or no state income tax can benefit from bonds issued by different states. That's because those higher yields can make up for the lack of their home state's income tax breaks. Some out-of-state bonds have better yields than in-state ones, too
Texas also has a large number of AA- and AAA-rated bonds, and the graph that Schwab shows that the only two states that have more are New York and California. In fact, the municipal bonds from these three account for close to 40 percent of all issuers. Schwab recommends a diversified portfolio of municipal bonds for a stable, long-term investment strategy.
Consider also: A List of Tax Deductibles in Texas