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The Lowdown on Buying a Municipal Bond

Dear Dr. Don, Where does one buy municipal bonds? I'd like to diversify my portfolio, but I'm not sure where to go.- Derrick DomainDear Derrick, I picked your question after a federal judge allowed Detroit to pursue reorganization under bankruptcy. It is one cautionary tale about the risks associated with municipal bonds.Municipals -- or munis, as they're called in the trade -- are purchased either in the primary market when an issuer sells a new bond, or in the secondary market from another investor. Primary market issues are purchased through the investment banking team underwriting the security offering, which are typically brokerage and banking firms. Secondary market purchases are made through brokerage firms.Rather than owning individual munis outright, you can buy shares of mutual funds investing in municipal bonds. There are also muni exchange-traded funds, or ETFs. For tax reasons, you may want to own funds or ETFs that invest only in muni obligations of your home state or loc...

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