Statement of Harold Wittman, D.D.S., CFP, at Field Hearing on State of Municipal Securities Markets
December 7, 2010
Financial security finds itself in the top echelon of priorities in the eyes of the individual. In the effort to maintain a current standard of living commensurate with one's desires and needs, there is a constant concern to develop a means of a constant stream of income in the years of retirement or in the event of a an emergency financial crisis. These factors are the motivators for saving and investment discipline.
Among the myriad of savings and investment vehicles, Municipal Bonds have become one of the attractive choices. For many years they were considered to be dull investments that produced little other than current income. They are long or short-term debt securities investments that add an element of stability in the asset allocation structure of portfolios and are often called fixed-income investments.
They provide current income and the opportunity for capital gains, can be purchased in the primary or secondary markets, and many have exceptional tax advantages. Municipal Bonds, which have tax exempt features, are not indicated for use in tax deferred retirement or savings programs. They are subject to five major risks, (all investments have risk): interest rate risk, purchasing power risk, business risk, liquidity risk and call risk, however they have demonstrated in the past a very low default rate of less than. 01%.
There are many variations of Bonds available, including insured entities. They are subject to complex legal regulations that serve to help protect the public, and are rated for levels of risk by rating agencies that include Standard & Poor's, Moody's, and Fitch.
They evaluate the financial soundness of issuers, their ability to repay debt, and constantly update the information and profile of all the issuers of Bonds on a periodic basis. When purchasing Bonds, it is important for investors to become educated on the various advantages and disadvantages of the different Bond entities prior to inserting them into their investment portfolios to see if they meet the strategies and goals that they had previously pre-determined.