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NYC BONDS

The status: If you want to invest in New York’s future, why not loan the city the money it needs to build new roads, bridges and schools? Municipal bonds are the IOUs cities give the investors that provide such loans, and interest earned on them isn’t subject to federal, state or city income taxes. But that’s not enough incentive for many investors. Independent stock trader Daryl Montgomery, organizer of the New York Investing group on meetup.com, says the returns on muni bonds (about 4 percent) are too meager, especially when the dollar is falling and inflation a threat. “We don’t recommend bonds in general, and particularly not now,” he says.

The game plan: Use a calculator. The tax benefits of the bonds may not offset their lower returns—particularly if you’re not in a higher tax bracket. Investing Is Simple’s Julia Posacki explains that if you’re subject to a 46 percent combined tax rate, a 4 percent NYC bond offers the same yield as a taxable bond offering a 7.4 percent return. That’s a good return, but it probably also means your salary is nearly $350,000 a year. “If you’re not in a position to get meaningful tax benefits from muni bonds,” Posacki says, “you’re better served with similar credit-quality taxable corporate bonds.”

If you’re a big enough earner for munis, you’ve got options. You can buy individual bonds with a maturity rate—from several months to 40 years—that matches your investment horizon through any online brokerage site, Posacki says. Or try mutual funds with New York muni fund holdings, like Rochester Fund Municipals and Dreyfus NY Tax-Exempt Bond Fund. As infrastructure investments go, they’re way better than buying the Brooklyn Bridge.

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