Municipal Bond Funds

Terry Says

I don’t know your personal situation so I really can’t advise.
But let me say this. The real advantage of tax-free bonds is that though the yields used to be lower than taxable bonds, the interest was tax free.
Today, many muni bond funds yield MORE than taxable government bonds! Now, why is that?? First, because the Fed has pushed all interest rates down on govt bonds. But also, because the market perceives more risk in munis –which are based on state and local tax revenues. And the more risk about ability to pay, the higher the yield they must offer.

A managed fund uses professionals to choose which of those higher risk bonds to purchase. Eaton Vance has a great track record.
But there is still risk that some of those bonds might not pay. And the other risk is that the Fed loses control and general level of interest rates rises, making older, lower-yielding bonds less valuable. A fund like the one you mentioned has a shorter term duration and would be less affected by a rise in interest rates, but still the value would drop a bit if rates rise. So you could lose money if you need the cash and have to sell.

I do not include muni bonds or bond funds in my “chicken money” category!