Invest Locally with Municipal Bonds

Physician's Money Digest, July 2006, Volume 13, Issue 7

Wall

Street Journal

Journal

With all the recent talk of overseasinvesting in China, India, and the like,many physician-investors are overlookingthe financial opportunities in their ownbackyards. Municipal bonds (ie, bondsissued by state and local governments tohelp fund state spending) are a solid wayto increase the returns provided by yourfixed-income investments, particularlynow, at a time when the gap in the yieldbetween short-and long-term Treasurybonds is negligible. According to the , municipal bonds, or munis,are exempt from federal, state, and localtaxes if you purchase them in your homestate. Because of this, munis comparefavorably with Treasury bond yields. Due totheir tax-exempt status, munis are especiallyattractive to investors in high taxbrackets, which includes the majority ofphysicians. In addition, munis have attractedlittle interest from foreign investors,meaning they offer a degree of protectionin the event of a bond market selloff.However, the advises that youkeep muni bonds out of your retirementaccounts, such as your 401(k) and IRAplans, because this will waste the taxadvantage of munis when you withdrawfunds. Instead, hold munis in a taxableaccount (eg, a brokerage account).