Income investors love municipal bonds for their tax advantages, but they may not necessarily be making the best choice for their portfolio.
The interest earned on munis is generally exempt from federal income tax and, in some cases, state tax.
That means a muni bond yielding 3.7% can reach over 6% on a tax-adjusted basis for those in the highest tax bracket.
For instance, if muni bonds are yielding 3% and Treasurys are at 4%, the answer is 0.75.
"If your tax rate is above that number, you should buy munis," Pate said.
Persons:
Richard Carter, Brian Barney, Fidelity's Carter, Wesly Pate, muni, " Pate, Carter, Paul Malloy, Pate, Barney, Research's Pate
Organizations:
Fidelity, Management, Vanguard
Locations:
munis, muni, Boston