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Municipal Bond Investment Advantages

If you make a municipal investment you are not subject to federal income taxes. For most income oriented investors, this is the most important thing - to have more money after taxes have been deducted. Or not to be subject to any taxes since what matters to them is what they keep not what they have earned. Tax-free investments have are substantially more beneficial since they leave you with more money for further investments.

In order to determine whether you should choose a taxable or non-taxable investment you should consider:

  1. your risk tolerance
  2. time horizon for investment

If you want to achieve higher levels of income you should be able to face higher levels of risk and become comfortable with it, since the variability in prices will be higher. In such a case, long-term or longer-term maturity funds may be the right choice for you, since they are characterized by high price fluctuations and they strive toward long-term goal achievement.

If you are facing the dilemma of whether to invest in a taxable or non-taxable bond fund, yield comparison may facilitate your decision making. However, this should be accompanied by a regular revision of the benefits of municipal investments that are part of your investment portfolio, since yields and tax rates are changed with time. In order to better compare taxable vs. non taxable yields you can subtract from one your tax rate and divide by this result the tax-free yield. In this way you will get a taxable equivalent yield that will greatly facilitate your comparison.

Additionally, several municipal investing calculators are available, which automatically convert federally tax-exempt yield into taxable equivalent after you enter the corresponding data.

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