By Steve Sjuggerud in DailyWealth:
…the lesson from the historical record of municipal bonds is that there's next-to-no risk to your money. But investors are scared today... so they've driven interest rates on municipal bonds up to absurd levels.
Take the Van Kampen Municipal Trust (symbol VKQ), for example. This is a fund with over $800 million in assets. It's currently paying a dividend of nearly 7% – TAX FREE. If you're in the highest tax bracket, you'd have to earn 11% in a taxable investment just to equal this 7% tax-free payment.
I believe in the very near future, the top income tax rate could go to 50% or higher. At that level, you'd have to earn 14% interest in a taxable investment to equal a 7% tax-free investment. Now that is a tall order!
When tax rates go up (as I'm certain they will), the demand for tax-free municipal bonds will soar. The result will be big capital gains in muni-bond funds like VKQ.
Read full article...
More from Steve Sjuggerud:
U.S. gov't creates amazing IRA loophole
Steve Sjuggerud: Insider selling at huge levels right now
This investment guarantees a 7% MINIMUM return for life
