Investing in tax-free municipal bonds may be a smart move as interest rates are expected to remain stable until at least September, according to UBS Wealth Management. This presents an opportunity for investors to take advantage of higher yields and potential capital gains in the municipal bond market.
Municipal bonds are generally considered lower risk compared to corporate bonds as they are backed by the full faith and credit of the issuer. Additionally, muni bonds offer the added benefit of tax-free income, making them a popular choice for high-net-worth investors looking to reduce their tax burden.
UBS suggests a “barbell” strategy for investing in municipal bonds, which involves buying short-dated bonds for liquidity and longer-dated bonds for income and potential capital gains. For those looking to add exposure to municipal bonds through ETFs, options like the Vanguard Tax-Exempt Bond ETF (VTEB) or state-specific muni bond ETFs can be cost-effective alternatives to purchasing individual bonds.
When shopping for municipal bonds, investors should be fee-conscious and consider the expense ratios of different funds. While large diversified municipal bond funds like the iShares National Muni Bond ETF (MUB) may offer lower fees, state-focused funds like the Vanguard New York Long-Term Tax-Exempt Fund (VNYTX) may come with slightly higher costs.
Overall, with the potential for rate cuts and stable interest rates in the near future, investing in tax-free municipal bonds could prove to be a lucrative option for investors looking to diversify their fixed income portfolios. Make sure to do your research and consider all available options before making any investment decisions.
