Larger scale investors with substantial income may also consider combining tax-free municipal bonds with their Treasurys. Individual muni bonds may also be laddered, just as Treasurys, in order to limit your interest-rate exposure. For those who don t yet have enough to build a muni ladder, the next best option is to look to a series of muni mutual funds. These funds often trade at less than their net asset values. That means that an investor s yields on a bundle of munis will be larger than their initial investments.
Many people invest in corporate bonds.
However, we are hesitant to recommend these vehicles. While they offer higher interest income than government bonds, you must examine, insteady, the costs which eat into those higher yields. Perhaps most important, the best bonds are usually callable by the issuer, meaning the corporation can, at its discretion, pay off its bonded obligation at a stated price and stop paying interest. This can be a lose-lose for investors. If interest rates decline and the value of the bonds goes up, the corporation may call them, disrupting your expected income stream and cutting off a potential capital gain.