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Millennials, Municipal Bonds And Interest Rates: A Guide To Reliable Investing

If you're a Millennial, who would like some help investing, look no further. Our simple, quick guide is going to tell you everything you need to know about where you should be putting your money.

Municipal Bond

You don't have to know much about investing to know that bonds are a very, very safe bet. Yet, they can still provide extremely good returns over the long term. That' one of the reasons most experts are quick to recommend we all add bonds to our portfolios.

Municipal bonds are especially easy to recommend. Sadly, a lot of people think they're only for those who are already rich or at the age of retirement. This leads them to make a massive investment mistake by ignoring the opportunity to put money into such a sound and reliable resource.

Millennials are a great example of this. They're in an ideal position to fully benefit from municipal bonds. If you're in your early 20s or 30s, you can focus on high-yield returns through the well-balanced municipal bond portfolio.

They offer a higher return than most other types of bonds, will stabilize the volatility of your other investments and will provide you with a consistent flow of investment income.

The Efficacy of Bond Ladders

One really smart way to get the most from municipal bonds is to actually use a bond ladder. Put simply; this is a portfolio of bonds that regularly mature (usually every year or every two years) across a specific maturity range.

As a bond matures, the principal gets reinvested into the ladder on a "rung" with the longest maturity. By doing this over and over, the strategy produces a fairly reliable stream of income. Using municipal bonds for this makes it even more reliable and great for capital preservation and tax efficiency.

Best of all, in a rising rate environment like we're in right now, returns can be reinvested at much larger amounts.

Rates Will Rise This Year

Make no mistake about it, either; interest rates are going to rise in 2016. The Federal Reserve recently announced they would be hiking them up at least twice though they most likely won't start until June at the earliest.

This creates fertile ground for using municipal bond ladders to their full advantage. The truth, though, is that even if interest rates hardly budge at all, the yield an investor would receive from their ladder could still go up anyway over time.

That's the beauty of this system and, again, why it works out so well for Millennials. Start now and you don't need too many market forces working to your advantage in order for municipal bonds to pay off in a big way.

When you consider how influential Millennials are-they represent the largest element of our labor force, for one-you understand why it's so important that they invest well. Their spending power is important to the future of our country. With a municipal bond ladder, they stand a real chance of getting the returns they need to live comfortably and grow the economy for decades to come.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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IncomeClub, Inc. is an SEC registered investment adviser. All IncomeClub’s customer assets are held in the customer’s name with Interactive Brokers, LLC, Member FINRA/SIPC.

Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in a loss. While bonds may provide an assurance of predictable return, there is a risk of default of particular issuer and there can be no assurance that an investment mix or any projected or actual performance will lead to the expected results shown or perform in any predictable manner.

Bonds are subject to interest rate, inflation, credit and default risk. The bond market is volatile. When investing in bonds in a rising rates environment, investors must be ready to see continually decreasing bonds prices and their recovering before maturity, and thus must be ready to keep bonds until maturity.

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