I looked into municipal bonds for the tax benefits. My tax advantaged accounts are already maxed out on regular bonds, and as I get older, I’m “supposed” to shift more into bonds. But I’m spooked about more cities going bankrupt even though its supposedly very rare.
For tax free bonds you have to check if the generally lower rate of return you get with them makes sense.
The best time to buy bonds is in times of high interest rates. Example would the 1980s.
Then if rates fall you get a gain in value because your higher rate bonds beat current lower rate bonds.
Buying them in a time of low interest rates means that when rates rise they lose value. Not good.
For me bonds have never been good. The returns have been awful.
I hold no bonds.
Treasurys are usually exempt from state income tax. Check for your state.
Also consider investing in a taxable but
tax efficient mutual fund. An example is the Vanguard Total Stock Market Equity Index Fund.
It generates hardly any capital gains and only 1-2% dividends each year but you get the opportunity for capital appreciation.
Here's an idea I use to judge my risk exposure.
I call it the Black Swan Number.
[Equities (stocks) x 1/2] + Cash and Equivalents (cash, bonds, money markets, T-bills, CDs, etc.) = Black Swan NumberThis number represents your position in case of a 50% stock market crash.
A 50% crash in stock values is not out of the question and has happened as recently as 2008-9.
If you can sleep comfortably with your Black Swan Number then you are in a good place.
You could have zero bonds if your equity holdings are large enough.
For example, if you own $20 million in stocks and they drop 50% you still have $10 million.
Hopefully you could live on that!
Just keep enough cash on hand for emergencies and expenses and so you don't need to fire-sale your stocks.
