Stocks are down over the past week.
High-flyers like Amazon (AMZN), Twitter (TWTR), and Facebook (FB) have plummeted.
Many people are now claiming that a bear market is starting.
What should folks looking for safe investment income do right now?
If you’ve listened to my common-sense advice, the answer is easy…
Nothing.[ad#Google Adsense 336×280-IA]Over the past four years, I’ve urged people to take advantage of the safe, steady income provided by municipal bonds.
Unlike any other analyst I know, I’ve been telling readers to buy these bonds.
I even went on national TV to make my case.
Municipal bonds have been – and will continue to be – a great deal for income-seeking investors.
As you probably know, municipal bonds are loans made to state and municipal governments.
To encourage investment in government projects, interest received from “munis” is exempt from federal income tax and, in many cases, state and local income taxes. This makes them a great way to earn investment income… and keep it all for yourself.
For example, if you earn $1,000 in annual interest in a taxable investment, and you’re in the 28% tax bracket, you’ll pay $280 in taxes to the government… and keep $720. In a tax-free investment, you’d keep all $1,000.
Since $280 is 39% of $720, you end up with 39% more money (and that’s just in the first year).
This simple example shows you how powerful the wealth-accumulating effects of tax-free investing can be.
And for many people, there’s another big benefit to owning muni bonds…
If you don’t want to follow stocks… or if you’re scared of market declines, municipal bonds are for you…
Take one of my favorite muni-bond funds, for instance… the Invesco Value Municipal Income Trust (IIM).
I began recommending IIM in my Retirement Millionaire newsletter back in March of 2011. Since then, the share price has remained relatively stable – it’s up about 7.5% in three years.
But each and every month – no matter what stocks have done – IIM has paid out a tax-free yield of more than $0.07 per share. That works out to a yearly income of about $0.90 per share… or about 6.25% at today’s prices.
When you consider the tax benefits, it gets even better… You’d have to make more than 9.5% in a normal investment to match IIM’s post-tax income.
And these funds are cheap…
Right now, funds like IIM are trading at 7%-plus discounts to the value of their assets. That’s because many investors fear that the Fed is going to raise interest rates in the coming months. Rising rates will decrease the value of muni-bond funds like IIM.
But I believe these fears are overdone… I don’t expect rates to rise sharply in the short term. Also, while interest-rate movements are notoriously unpredictable, we’ll have plenty of time to react if we do see them start to edge higher. And the discount we’re getting provides us with an additional degree of safety.
If you’re interested in earning income that’s outside of the stock market, I encourage you to learn about municipal bonds. In the case of my favorite muni-bond funds like IIM, you can buy valuable assets at 7%-plus discounts… and earn tax-free yields of more than 5%.
Stocks can rise and fall, but these income streams keep flowing.
Here’s to our health, wealth, and a great retirement,
Dr. David Eifrig
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