Muni bonds Vs BAB bonds: Which to Include in Your Bond Portfolio

Weighing the benefits of muni bonds vs BAB bonds, investors concerned about their present viability in the current debt climate will find both routes remain fruitful avenues. Most analysts will tell you that neither happens to be a bad option for your bond portfolio – each offering promises of predictable income that are upheld far more often than not.

The Argument for Munis

Investors who include traditional municipal bonds in their bond portfolio are still rewarded with quality pay, and while there is some risk associated, investors can still sleep soundly at night with the confidence in knowing they have a sound bond portfolio that is comprised of a tried and true product that has historically been considered one of the safer investment options.

The Argument for BABs

Build America Bonds were introduced last year by the Obama White House and have proven to be one of the more effective efforts on the administration’s part to jumpstart our deteriorating economy. BAB ETFs have been associated with high pay and have helped numerous municipalities stay above water and stave off muni bond defaults; however, there are downsides that come in the way of a key difference between muni bonds vs BAB bonds: High underwriting fees. Detractors of the Build America Bond program are often quick to reference the hefty $8.20 per $1,000 fees that BABs command – stating that this only helps to further line the pockets of Wall Street fat cats.

A Solid Choice for Your Bond Portfolio

If you’re looking to gain exposure to muni bonds with low costs and high liquidity, a Build America Bond ETF may be ideal, and the PowerShares Build America Bond ETF may be a good place to get started. Launched in November of 2009, this exchange traded fund already has grown to contain hundreds of millions of dollars in BABs.

While reluctant investors may be concerned over the thought of Congress not extending the Build America Bond program, this issue may very well be moot -- the overwhelming popularity of these taxable titans should ensure that no plug will be pulled in the near future.

Ultimately, any bond portfolio would stand to benefit from the higher yields, low costs and liquidity associated with BAB ETFs. The truth is yields on bonds look to remain low while the economy still remains in a slump; thus, the value of including BAB ETFs in your bond portfolio cannot be underestimated or overlooked.