Aren't you worried about recession impacts etc on the individual munis? Or are munis like Govt backed and have less to worry about?
Any example munis you can reference here? thx.
There are indeed different investment grades for different muni bonds. Just like corporate bonds, they have ratings like AA, BB, etc. Interest rates go up as risk quality goes down. I use my muni portfolio interest income for my living expenses. So I hold them to maturity (or more usually, until they get called). If you buy munis from your state, the interest income is 100% tax free. Which helps a lot given all the AMT tax pile ons and lost deductions that can result from that (while I managed to keep the $7,500 tax credit for buying an EV last year, I didn’t get the credit for the $800 EVSE installation, go figure).
I tend to buy very high investment grade bonds that have a dedicated revenue stream attached to the interest payments, but your risk appetite might be higher. So my bonds are either CA State General Obligation bonds (backed by the taxing authority of California, say what you will, CA isn’t going bankrupt anytime soon), or things like some water or sewer board that has direct access to the income from water utility charges or sewer charges which come from property tax bills.
Each muni bond is different, so you kinda have to read and understand the bond. Or buy a muni bond fund.
I could go on, like talking about calls and figuring out the taxable equivalent interest rate (the muni might only give you 4.0% interest, but that could be equivalent to a 7% taxable bond depending on your marginal tax rate).
Edit, so about recessions. No I’m Not worried. Munis very rarely default, and their interest payments are generally very secure. And I hold them to maturity, so I don’t care about interest rate swings.