Investor behavior can have a big impact on municipal bond investment results over time. Consider investors who sit in cash and plan to get back in when the market settles down. That can be costly — municipal bonds nearly always outperform cash equivalents like U.S. Treasury bills. Plus, recoveries happen quickly and missing the first few months of one can eliminate much of the returns. Yet many investors do just that.
There are three key risks to avoid when investing in municipal bond funds:
1. Market timing: The high cost of market timing in fixed income
2. Sitting in cash: Scared money rarely wins.
3. Waiting for the bottom: It may be better to be early than late.
Read more about the risks and the data behind why they’re risks in our full investment insights report.
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The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
Municipal securities are subject to the risk that legislative or economic conditions could affect an issuer’s ability to make payments of principal and/ or interest.
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