Do Not Write Off Munis: Comparing Historical Municipal Bond Returns To Stock Returns

johnN

https://seekingalpha.com/article/4266599-write-munis-comparing-historical-municipal-bond-returns-stock-returns

Do Not Write Off Munis: Comparing Historical Municipal Bond Returns To Stock Returns
May. 27, 2019 7:39 AM ETAFB, BFK...9 Comments6 Likes
Summary

Municipal bonds.
S&P 500 stock market index.
S&P 500 versus municipal bonds Risk and volatility.
Average vs. annualized returns.
Do taxes really make a difference?

So ~7%vs 6% annual return for 25 yrs...

Ted

@JohnN: Choose one delete the other !
Regards,
Ted

Old_Joe

@Ted: Although JohnN's links may not be the greatest thing since sliced bread, there is no need to pile on by an upper tier MFO member !

Regards,
OJ

JoeD

"..the average return of the S&P with dividends is 11.45% while municipal bonds averaged 6.03% during the same time period."

And so yes, munis will have lower volatility due to lower expected returns.

If you are in the very top Income tax brackets, muni's become a lot more interesting. But most of us don't hit those levels.

msf

With the historical ratio of muni yields to (10 year) treasury yields of 80%, munis can be attractive to upper middle class earners, even with the currently reduced tax rate of 22% -24% for these families. Of course I'm comparing munis with other bonds, not with equities.

The Municipal/Treasury Ratio: How Investors Should Use It

That's not to say now is a good time to buy munis. Baird reports that "The 10yr AAA GO Ratio, now at 72.1, is the lowest level since at least 2001."
R.W. Baird, Muni Fortnightly, May 13, 2019.

Even if the after-tax returns are merely comparable to taxable bonds, the lower pre-tax return of munis can help seniors to reduce their MAGI. This affects taxation of SS benefits and surcharges on Medicare (IRMAA).