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3 Best Municipal Bond ETFs for Tax-Free Income (VTEB + More)

Municipal bonds offer tax-free interest and are beneficial for very high income earners. Here we’ll look at the best municipal bond ETFs. // TIMESTAMPS: 00:00 - Intro - Why Municipal Bonds? 01:09 - MUB 01:34 - VTEB 01:57 - SHM 02:25 - Outro // SUMMARY: Why Municipal Bonds? Municipal bonds, or munis, are bonds issued to investors by states and municipalities to pay for infrastructure and operating expenses. Muni bonds are popular among high income earners because their interest payments are exempt from federal and some state taxes. Public-purpose munis are specifically free from the alternative minimum tax, called “AMT-free.” Municipal bonds are more correlated with stocks than treasury bonds, but less correlated than corporate bonds. Muni bonds also have a much lower default rate than corporate bonds. If yield is a concern, as with using bond interest as income, you can easily see if muni bonds might make sense for you. Simply compare the after-tax yield of an investment-grade bond to the tax-free yield of the muni bond. For example, if a taxable bond is paying you a 3% coupon and your tax rate on that income is 25%, the after-tax yield is 2.25%. If the tax-free muni bond is paying more than 2.25%, it is probably the better choice, particularly if we’re talking about junk bonds. Let's check out the best municipal bond ETFs. MUB – iShares National AMT-Free Muni Bond ETF The iShares National AMT-Free Muni Bond ETF (MUB) is the most popular municipal bond ETF with nearly $18 billion in assets. The fund seeks to track the S&P National AMT-Free Municipal Bond Index. This ETF is broadly diversified with over 4,400 individual holdings. It has a weighted average maturity of 5.4 years and an expense ratio of 0.07%. VTEB – Vanguard Tax-Exempt Bond Index ETF A slightly more affordable way to track the same index as MUB above is with the Vanguard Tax-Exempt Bond Index ETF (VTEB), which has an expense ratio of 0.05%, making it the most affordable on the list. While still highly liquid, VTEB could be considered less liquid than MUB with about half the AUM. SHM – SPDR Barclays Short Term Municipal Bond The SPDR Barclays Short Term Municipal Bond (SHM) only targets short-term municipal bonds, with a weighted average maturity of 2.9 years. As such, investors can expect lower volatility but also lower expected returns than the ETFs above. SHM seeks to track the Barclays Capital Managed Money Municipal Short Term Index and has over $4 billion in assets and an expense ratio of 0.20%. Read the blog post here: https://www.optimizedportfolio.com/be... #investing #bonds #incomeinvesting // INVEST ► M1 Finance: https://optimizedportfolio.com/go/m1 ► My comprehensive review of M1 Finance: https://www.optimizedportfolio.com/m1... ► Get my dividend portfolio: https://www.optimizedportfolio.com/m1... ► Lazy Portfolios: https://www.optimizedportfolio.com/la... ► Beginners’ reference guide (updated regularly): https://www.optimizedportfolio.com/be... ► Webull (for stock traders; get 2 free stocks): https://act.webull.com/kol-us/share.h... // SOCIAL ► Website: https://www.optimizedportfolio.com/ ► Patreon:   / optimizedportfolio   ► Facebook:   / optimizedportfolio   ► Instagram:   / optimizedportfolio   ► Twitter:   / optimizedport   ► Support my channel by shopping on Amazon (free for you): https://amzn.to/2TLCgCc I appreciate all the support! Disclaimer: This is not financial advice, investing advice, or tax advice. The information presented is for informational, educational, and entertainment purposes only. Investment products discussed are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here: https://www.optimizedportfolio.com/te... Disclosure: Some of the links above are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality content on this channel and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful.