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The Short Answer

Do Municipal Bonds Have a Place in My Portfolio?

Consider the tax implications before adding a muni investment to your portfolio.

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Question: I know that municipal bonds offer great tax breaks for investors, but I'm not sure they make sense for my portfolio because I'm not in the highest tax bracket. Am I better off investing in municipal bonds or traditional bond funds? How would I know?

Answer: Late 2010 and the beginning of 2011 were marked by some scary (and exaggerated) headlines on the state of municipalities' finances, laying the groundwork for a terrific buying opportunity in the asset class. The average muni fund has gained 13% in the one-year period through January, prompting Morningstar director of fixed-income analysis Miriam Sjoblom to opine in a recent video that last year's returns may not be easily repeated.

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