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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. does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.