Weekly Financial Wrap: The Allure of Munis, Crypto Mining and the Open Road
Surge in Municipal Bonds
Municipal Bonds have never been sexy unless you like steady tax-free income. Interest from munis is free from federal and state taxes if you are a resident of the state where the bonds are issued.
President Biden’s planned tax hikes have been credited with sending more money into munis. That has resulted in higher returns. In fact, municipal bonds have outperformed treasury bonds for seven straight months.
More To Come
With more cash pouring into municipal bond mutual funds, most analysts see strength in the market.
In a March report, Bank of America (BofA) concluded: “The American Rescue Plan, along with President Biden’s forthcoming infrastructure plan, forms the basis of the golden decade that we expect for muni market issuers through 2030.”
Positive Impact of Federal Aid
State and local governments are receiving $350 billion in aid from the $1.9 trillion stimulus plan signed into law on March 11 by President Joe Biden. As a result, S&P Global Ratings and Moody’s Investors Service upgraded their credit outlook for state and local governments from negative to stable.
Impact of Interest Rates
Earlier this year, treasuries fell on interest rate fears. However, municipal bonds rose. Certainly, municipals tend to do well when interest rates increase.
Are Munis For You?
Tax-free interest is appealing to high-income earners. But what about us average types?
Even if you’re not in the top tax bracket, municipal bonds may help with tax-free income. If your bond(s) are in your state, the interest they pay may be free of state and local states. If you live in a high-tax state, such as California or New York, that could be significant.
In addition to tax advantages, munis are safe, especially if you stick to high-rated bonds. For that reason, many retirees use municipal bonds to supplement their incomes.
If you are looking for a reliable source of investment income with tax benefits, munis are a good option to explore. However, if you have a lot of time for growth, munis are not a good choice.
With the increase in vaccinations, more Americans are eyeing a vacation, according to Booking.com, a travel planning and reservation site. However, some travel options are limited.
Just over 71 percent of those surveyed by Booking.com say the roll-out of vaccines has made them more optimistic about traveling in 2021. In addition, 60 percent say they now view travel and vacations as more important than they did before the pandemic.
The result is that more Americans are planning to travel this summer than last year.
Air travel began to pick up over the end of the year holidays and continued over spring break. The Transportation Safety Administration (TSA) has recorded over one million travelers a day since March 11.
Over 67 percent of Americans plan to travel this summer, according to Tripadvisor, an online travel site. That’s an increase of 17 percent.
Cruise lines are cautiously setting sale again. However, bookings are being limited to comply with Center for Disease Control (CDC) restrictions. In addition, Spring cruises have been for rivers and coastlines in the United States. Caribbean cruises are scheduled for mid-summer.
On the Road Again
While airline business is picking up, many Americans are planning to travel by car, according to a TripIt survey.
“According to our survey data, 83 percent of respondents said they’d be ready for a road trip with a personal car by June,” stated the TripIt Survey. “60 percent of respondents said they’d be ready to take a road trip with a rented car or RV by June. That’s more than twice as many travelers expressing readiness to take a road trip with their own car versus boarding a domestic flight.”
Control and Tax Benefits of ETFs
There is a monumental shift from mutual funds to ETFs. Many high-income investors like the tax benefits of Exchange Traded Funds, but there are more reasons investors like them.
SA will explore this trend in Sunday’s edition.
Better Than Bitcoin?
Undoubtedly, you have watched or participated in the Bitcoin bull market. The cryptocurrency has jumped 525 percent over the last 12 months. However, there is another cryptocurrency investment that has far outperformed Bitcoin.
Riot Blockchain has gained 8,000 percent over last year. What is Riot Blockchain? It is a bitcoin mining company. Likewise, other crypto mining companies, such as Hive Blockchain and Marathon Digital Holdings have also posted substantial gains.
Crypto mining companies, sometimes called farms, use high-powered computers to solve complex math problems. Subsequently, bitcoins are produced and placed in circulation.
“Bitcoin miners form the core backbone of Bitcoin’s blockchain,” according to market research firm Fundstrat. “In order to secure the Bitcoin ledger of transactions, miners burn electricity to computer-generated guesses aiming to solve cryptographic puzzles. The first miner to solve the puzzle receives the right to mine the next block and collect the associated block reward (6.25 Bitcoin subsidy and transaction fees) every ten minutes.”
With bitcoin topping $57,000, most of this week many retail investors find the cost of investing in the cryptocurrency prohibitive.
How To Invest
Another option for investing in bitcoin is by buying shares in a mining company. In addition, shares in mining companies are relatively cheap. Most are trading below $50 a share.
There is upside potential for mining stocks during the current cryptocurrency bull market. However, just as the currencies they mine can rise and fall dramatically, so can mining companies.
One way to limit risk is through a diversified mutual fund or ETF. However, until recently, there were no funds with mining interests. That changed last month when several ETFs began offering crypto mining as part of their portfolios.
A Word of Caution
These new mining stocks may rise high. However, they can also drop quickly. This is not where you put your retirement funds or money needed for other long-term goals.
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