I Learned Something About Bonds

Last year, I invested in a municipal bond (a.k.a. Muni).  It was supposed to be a thirty year, tax free (YAY) bond with an interest rate of 5.5%.  I could, however, use that interest to purchase other investments.  I asked if I could sell it at any time during those thirty years in case I needed the money and was told absolutely yes.  It sounded good to me, my financial planner thought it would be a good long term investment, so I bought it.  I would be paid interest twice a year, but couldn’t reinvest it.

This week, I looked at that particular investment and discovered that it was going to mature towards the end of October, 2024.  So, one year into it’s thirty year run, it was going to be over and done with.  What was that?!?  As a result, I called my financial planner to ask about it.  What my guy told me was the because interest rates are going to start to come down this fall, the municipality who issued those bonds probably didn’t want to keep paying a high rate of interest for the next twenty-nine years.  So instead, what will happen is that I will get my initial investment back along with any accrued interest.  I never realized that once I purchased that bond, that it could be called in at any time.  I actually thought it would be up to me if I kept it for thirty years or not.  I was disappointed.

I thought I had a very safe, long term investment that would earn tax free interest for a very long time.  Obviously, I was wrong.  I’m not an expert in the area of stocks and bonds which is why I have a financial planner to work with.  I’m still a work in progress in this arena.  However, this is a lesson I won’t forget and I wanted to share it with all of you.  After I get my investment and interest returned, I’ll share what I did with it.  It initially came out of a money market account that I used to save up a sum on money for investing purposes.  It can go back into that money market account OR, I may decided just to invest in something else.  I’ll have to look at my options once I have the funds back.  This is another thing I’ll have to post about at a later date.

I just wanted to share what I learned this week.  If it helps you, great!  If you already knew this, oh well.  But, bonds still can be a good investment, even for the short term as I discovered.  Once everything is said and done, I’ll have earned a little over $500 of tax free money.  You can’t beat that!