With the recent tax cuts, many are now questioning the value of the tax benefits municipal bonds deliver. But such doubts are nothing new.
Over the past 30 years, there have been a number of tax reductions and financial crises that have raised concerns. But the Tax Reform Act of 1986, the flat tax proposal from presidential candidate Steve Forbes, and the Global Financial Crisis of 2008-2009, to mention a few, did not derail the muni market. Municipal bonds continued to deliver attractive returns for investors after all of these events.
While the past is not a prologue to the future, history does suggest the merits of ignoring the headlines. When investors adopted a buy-and-hold strategy and avoided overreacting to the news, the benefits of realizing attractive after-tax returns accrued considerably over time.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value.
Fixed income investing entails credit and interest rate risks. Interest rate risk is the risk that rising interest rates, or an expectation of rising interest rates in the near future, will cause the values of a fund’s investments to decline. Risks associated with rising interest rates are heightened given that rates in the U.S. are at, or near, historic lows. When interest rates rise, bond prices fall and a fund’s share price can fall. Municipal bonds are subject to default on income and principal payments.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.