The disaster that was 2020 is finally out of our hair, though there could be one silver lining if you followed a contrarian investing approach in 2020: serious gains in your stock portfolio.
But, of course, those gains come with a big consequence: Uncle Sam will be coming for his share on Tax Day in April. And to be honest, we don’t have much leeway to cut our 2020 tax bill at this point. But there is one canny move we can make to (legally, of course!) reduce our tax burden in April of next year: buy municipal bonds.
What Everyone Gets Wrong About Municipal Bonds
Sure, municipal bonds (issued by cities and states to fund local infrastructure) seem like a pretty boring option when there are corners of the stock market (I’m looking at you, tech) that jumped 40%+ last year. But that, in a strange way, is why we love munis: their low volatility gives a portfolio a strong base from which to build, and they pay us a nice dividend, too. Right now, in fact, you can grab attractive muni-bond funds trading at discounts to their true value and throwing off dividends yielding up to 5%.
Here’s where their tax advantage comes in, because that 5% payout is tax-free for most Americans. That’s a critical