The Case For Muni Bonds

How about a 6.40% yield* for a AA rated school district? Sounds interesting, right?

If you are a small business owner in California, looking for passive income, and tired of being gouged by taxes, consider California Municipal Bonds.

There was a new issue recently for Fresno Unified School District with a 2049 maturity that has a 4.16% yield to maturity, which is a 6.40% taxable equivalent yield*.

(*Assumes a 35% tax rate)

*Taxable Equivalent Yield=what you would have to earn on a corporate bond or other taxable fixed income product in order to match the tax-free yield on a municipal bond, at a certain tax rate (we assume 35% tax rate for simplicity).

Looking for more diversification within CA munis?

iShares California Muni Bond ETF (ticker CMF) could be your ticket.

Some advantages of CMF include:

1) 3.17% yield, 4.88% taxable equivalent yield (assuming 35% tax rate).

2) 3.32% annualized return since 2007.

3) 0.08% expense ratio (very low).

4) High quality securities with 94% AA or AAA rated.

5) 0.25 correlation to the S&P 500 (IE, a great diversifier to stocks).

6) Low default rate. From 1970 to 2021, investment-grade munis had a 0.09% default rate within 10 years of issuance, while corporate bonds had a 2.17% default rate.

Interested in learning more about investing and saving money on taxes? Click here to Book A Meeting.