After the S&P Municipal Bond Index posted an annual return of 9.26% in 2014, most investment gurus predicted a fallback in 2015, and early results bear this out.
Strategy: Don’t count out municipal bonds (commonly called “munis”).
There are four key reasons to keep or add munis to your portfolio.
1. The interest income earned by munis is exempt from federal income tax. For example, if you’re in the top 39.6% federal income tax bracket and you receive a 4% return on a muni, it is the equivalent of a 6.62% return of a taxable investment on the federal level.
2. The interest income earned by munis may also be exempt from state income tax if an authority within the state where you reside issues the bonds. This further increases the after-tax return on certain bonds.
3. The interest income earned by munis does not count toward your adjusted gross income (AGI). Therefore, the tax exemptions can provide other tax benefits on y...(register to read more)