Examining the Conventional Wisdom of Municipal Bond Investments and Use in Financial Planning

• Published in: Journal of financial planning (Denver, Colo.) Colo.), 2023-08, Vol.36 (8), p.85-85
• Main Authors: Todd, Timothy M, Heckman, Stuart, MacDonald, Maurice
• Format: Article
• Language: English
• Subjects: Financial planning; Investment; Investments; Municipal bonds; Return on investment; Risk aversion
• ISSN: 1040-3981

* Using the 2019 Survey of Consumer Finances, this study examines empirically conventional wisdom of municipal bonds as a generally safe tax-minimization device and other aspects of municipal bond investment, including the associations between such ownership and professional investment advice. · Conventional financial-planning wisdom surrounding municipal bonds suggests that as income increases, so should the likelihood of municipal bond investment (to offer legal tax avoidance and minimization). Municipal bonds are generally seen as a "safer" investment due to traditionally lower default rates. Thus, conventional wisdom would suggest that as willingness to take financial risk decreases, the likelihood of municipal bond investment should increase. Because municipal bonds are a more specialized investment option (i.e., for tax minimization), their use should be associated with higher levels of financial knowledge. Relatedly, because municipal bonds are a more niche investment (compared to corporate stock, for example), their use should increase with use of a financial or other adviser. · This study finds that municipal bond investment is positively associated with interest and dividend income, net worth, objective financial knowledge, and the use of a financial planner. · It also finds that municipal bond investment is negatively associated with willingness to take financial risk.