Municipal bonds provide investors with tax-exempt interest income, which is especially beneficial for those in high tax states like New York and California. While the rates are typically lower than corporate bonds, they come with the significant advantage of federal and state tax exemptions. Investors can opt for individual bonds or municipal bond mutual funds and ETFs. The latter allows for greater liquidity as they trade on exchanges. However, leveraged municipal bond ETFs can increase risks, making direct consultation with a financial advisor advisable for tailored investment strategies.
The main advantage of municipal bonds is that their interest income is often exempt from federal and sometimes state taxes, appealing for high-tax investors.
Investors can generate significant tax-free income through municipal bond ETFs, but they must be aware that leveraging increases risk as well.
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