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Redrick Terry:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. David, welcome back.
David Nelson:
Thanks Redrick. Appreciate it.
Redrick Terry:
Absolutely. When you’re talking about municipal bonds this week, we’ve seen them in the headlines, what’s your take on these types of bonds?
David Nelson:
I think everybody loves tax free income, and municipal bonds are tax free. They’re federal tax free. They could be state tax free if you own a specific one to the state that you reside in, terrific investment.
David Nelson:
This visually shows as far as what’s taking place in ’16. This would be roughly election time here. We had this drop off. I’ll explain that here momentarily. But overall it’s been a really nice asset class to own. You’re looking at 2 and 3% returns. That doesn’t sound that exciting, but relative to other safe type investments are pretty good.
David Nelson:
This selloff was pretty dramatic. This came about when President Trump was elected, and his goal was to lower tax rates. The municipal bond market doesn’t look quite as attractive with lower rates so that the market sold off. However since it’s been absolutely fantastic, a great buying opportunity if you’re lucky enough as far as to be disciplined enough to try to buy there.
Redrick Terry:
Certainly, then what about Illinois and Iowa specifically?
David Nelson:
Illinois and Iowa, this is the Chart Two. This is trying to visually show the difference in Iowa’s interest rates during this period. And this is looking at yield. We typically talk to people in terms of municipal bonds, tax free bonds, corporate bonds. All bonds are driven by interest rates so as interest rates go up the value of your bond goes down, and vice versa.
David Nelson:
As rates have dropped during this window here, you made a lot of extra money. What’s taken place in recent times is we see the yellow is the Iowa bonds and the pinkish is the IL bonds. What we’ve seen is interest rates drop here during this particular window which is good if you own those particular bonds.
David Nelson:
Now Illinois is dealing with a lot of financial issues as far as the state is, and the bottom line is this is a real big, important issue as far as over there. Be careful if you’re buying Illinois municipal bonds. There is a fair amount of additional risk that’s associated with that.
Redrick Terry:
All right David. Good stuff.
David Nelson:
Thanks Redrick.
Redrick Terry:
As always we thank you for joining us.
David Nelson:
Thanks Redrick. Appreciate it.
Redrick Terry:
Absolutely. If you missed any part of this conversation, we’ll make it available for you on ourquadcities.com.
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