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Let's give credit where credit is due. Recently, Forbes published an article that to some might seem like the kind of article that sits on the shelf until there is a slow news day and the editor is looking for a filler piece. In fact, this article raises a number of important points that, in my opinion, all touch upon the national economic recovery and just may be the locus of the revival of small business and wealth creation. Why is this important to MUNI NATION? My concern is for the economic health — no, survival — of state and local governments that issue tax-exempt debt securities in order to meet the public needs of their inhabitants. The Forbes article points to migratory population shifts (measured in part by statistics from moving companies) that I believe will have very real consequences for certain states. As there is net "out migration," there may typically be loss of tax revenues, user fees and consumption at the local level. Naturally, that may result in further belt-tightening for budgeting and, as we saw during the recession, jobs were cut and/or taxes were raised to meet those obligations already etched in stone. For some of the affected areas in the Rust Belt, I believe the consequences of the high cost of living and already high taxes will create painful decisions. The article highlights the following, which might not come as a surprise, except that I believe it reflects the perpetuation of a disturbing long-term trend lawmakers should soon address.
Out Migration Rate*
By contrast, the following states have the highest ratio of people migrating in: North Carolina, Oregon, South Carolina and Nevada. Surprisingly, Washington, D.C., reports Forbes, currently is the most popular destination for relocation. The area attracts highly educated professionals to high-tech and government-sponsored jobs. All of the above makes, in my view, the case for investing in highly diversified products, such as low-cost ETFs, where any price adjustments resulting from the impact of migratory patterns should be de minimis, potentially avoiding over concentrations to those states where the impact might be the greatest.
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Municipal bonds are subject to risks related to litigation, legislation, political change, conditions in underlying sectors or in local business communities and economies, bankruptcy or other changes in the issuer’s financial condition, and/or the discontinuance of taxes supporting the project or assets or the inability to collect revenues for the project or from the assets. Bonds and bond funds will decrease in value as interest rates rise. Additional risks include credit, interest rate, call, reinvestment, tax, market and lease obligation risk. High-yield municipal bonds are subject to greater risk of loss of income and principal than higher-rated securities, and are likely to be more sensitive to adverse economic changes or individual municipal developments than those of higher-rated securities. Municipal bonds may be less liquid than taxable bonds.
The income generated from some types of municipal bonds may be subject to state and local taxes as well as to federal taxes on capital gains and may also be subject to alternative minimum tax.
Diversification does not assure a profit or protect against loss.
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Investing involves risk, including possible loss of principal. An investor should carefully consider investment objectives, risks, charges and expenses carefully before investing. This and other information can be found in the appropriate regulatory documents made available for a specified country as designated in this website.