This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Muni Bonds: They're Not Just for Rich People Anymore

This article originally appeared in Dagen's newsletter, The Save Safe Plan, which also includes a model portfolio of promising dividend-bearing stocks. For more information on this product, please click here.

While Washington has passed along a nice tax cut on income, capital gains and dividends, states have been busy doing the reverse: hiking taxes.

But if you want an investment that sidesteps federal, state and maybe even some local taxes, think municipal bonds.

Tax-exempt bonds are historically cheap compared with Treasuries right now. Money has been flowing in Treasuries for their safety. And at the same time, the supply of municipal bonds has picked up as state and local governments try to take advantage of the low rates.

The thinking used to be that you had to be in a high tax bracket in order for muni bonds to be a good investment. But these days, the yields on these securities are so close to those on taxable government bonds, munis make sense for many more people.

How and why should you invest in tax-exempt bonds? Hugh McGuirk, a municipal-bond manager at T. Rowe Price, answers those questions.

First, how do municipals look these days?

McGuirk: Relative to Treasuries, municipal bonds are quite attractive. A 30-year municipal bond is trading at the same yield as the 30-year Treasury. And municipal bonds aren't subject to federal tax.

One two-year municipal bond delivers 89% of the yield of a two-year Treasury. You're far better off in that municipal bond after taxes, regardless of your tax bracket.

But there is a difference in credit quality. There is no better credit than the U.S. government. The U.S. can print money. The state of Maryland and the state of New York cannot.

There's also a liquidity difference. It's easier to sell Treasuries. If you need to sell municipal bonds before maturity, a significant penalty is extracted if you're a small investor. To get an efficient price in the municipal bond market, you have to be selling in increments of a half-million dollars and higher.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.66 -0.09%
FB $118.57 0.84%
GOOG $698.30 0.76%
TSLA $241.82 0.44%
YHOO $36.53 -0.19%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs