Investing in bridges, roads and airports sure doesn’t sound too sexy, but it’s coming back in style by way of municipal bonds.
Munis, as they’re known, were never much to write home about until recently. Their returns have grown as investors come back to bonds as a flight-to-safety trade. Treasury bills have traditionally offered better returns than munis, but as the stock market sank, investors fled to T-bonds and their prices jumped, meaning what you can earn from them went down.
Meanwhile, the opposite has happened to munis, which are issued by local governments to pay for public works or projects. Right now, a 15-year muni bond earns about 5%, but since they have the added advantage of being exempt from federal taxes, it is the equivalent of a roughly 8% taxable investment.
But before you jump in, consider that there is a vast range of munis to invest in. For regular folks, Carmen suggests buying into a fund that holds a wide range of these bonds. Even if some of the bonds default – which is highly unlikely – your portfolio will still be protected.