Bonds for Small Investors
Bonds are used to fund government projects such as repairs and maintenance to state and federal parks, bridges, government buildings and more. On a state level, bonds are issued to keep schools in good repair, fix roads and for other state infrastructure projects.
In most cases, the minimum bond size is out of the reach of most investors if they are not institutional investors. Bonds are sold at par (e.g., at face value), below par (e.g., below face value) or above par (e.g., above face value).
Unfortunately, bonds are not always within reach of the individual investor. In some states, bond issues have been put within reach of the smaller investor using a classification called mini-bonds. These bonds can have a face value of as little as $25.00 although typically they are in the $500 range, making it easy for more small investors to purchase them.
Mini bonds are not without controversy (e.g., in May of 2011, California Assembly Bill 1408) nor are they available to all investors. In order to take advantage of the tax-exempt status of these bonds, they must be purchased by those who reside in the state that they are issued.
These bonds are generally unrated by bond rating agencies like Moody’s and other bond rating agencies even though they are backed by the full faith and credit of the issuer. One of the challenges with these bonds, however, is that when a state (or municipality) is facing budget problems, these bonds may be more difficult for them to sell to residents.