Bonds 101: What they are and how they can fit into your investment strategy

In Your Money Matters, News on 6's Dave Davis asked Josh Herlan to break down what it really means to invest in municipal bonds and how everyday investors can get started.

“If I am buying a municipal bond what am I doing?”

“Well, yeah, there are a lot of ways to buy a municipal bond,” said Josh Herlan, founder of Future You Financial. “You can go to your brokerage, platform of choice and buy them individually. We've been helping a lot of clients do that lately. Or you can buy a bond fund, and that's kind of a clean, easy way to do it.”

Herlan said he’s currently looking at bond funds with “about a 10 to 15 year maturity to duration. And you're going to maybe get 4 or 5%, maybe tax for your fidelity tax rate on that money, and you're kind of locking that yield in for that period of time.”

“I like individual bonds because I get more control over when to sell the asset,” Herlan added.

Taking it back to basics, Herlan explained, “Maybe you loan, a company or a municipality $1,000, and the coupon might be set at 5% of that thousand dollars, right? And maybe it's a 30 year bond, Dave.”

Herlan cautioned that rising interest rates can affect bond prices: “If you're getting 5% on your bond and tomorrow that raise interest rates and you can buy a new bond, the same bond almost, and get 7%, then the price you're going to get on the one you have is probably going to go down.”