Investors Wanting Safety Should Look At VRDO’s

Once reserved only for institutional investors and high net worth clients, the exchange traded fund boom has recently opened the doors up to regular retail investors wanting safety and tax-free yields. A Variable Rate Demand Offering bond or VRDO is essentially a short-term tax-exempt fixed income bond whose distribution is reset on a periodic basis. This can occur weekly or monthly. VRDOs tend to be issued with extended maturities. In the case of some bonds, sometimes as long as 40 years. However, the bonds are issued with a “put” characteristic, which allows investors to cash in their security at any time and receive face value. VRDOs are considered short-term securities. The periodic rate reset can also benefit in periods of rising interest rates as the rate is reset at higher and higher yields. The put safety, resetting yield and tax-free nature of these bonds make them ideal holdings in times of trouble. The PowerShares VRDO Tax-Free Weekly PVI is the older of the ETFs, but investors can also choose the SPDR Nuveen S&P VRDO Municipal Bond VRD.