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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: Bond yields have dropped precipitously in recent years, dragging down future bond returns in the process. (Current yields have historically been a good predictor of what to expect from bonds.) But for income-oriented, tax-conscious investors, muni bonds might still serve a worthy role--even for people whose taxable income doesn't land them in the highest tax bracket.

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