Money For the Rest of Us Beyond Munis — New ETFs for Tax-Efficient Bond Investing
Oct 8, 2025
Explore the intriguing world of tax-efficient bond investing! Dive into the benefits of municipal bonds and compare them with new tax-efficient ETFs. Discover how the Alpha Architect BOXX ETF cleverly uses options to achieve tax efficiency. Learn about the FM Compounder Aggregate ETF and its unique strategy to sidestep distributions. David discusses the risks involved with new ETFs and reveals how their approaches can complement an investment portfolio focused on yield. Don't miss insights on the evolving ETF landscape!
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Munis Offer Low Default Risk And Tax Benefits
- Municipal bonds are often tax-exempt at the federal level and can be state-exempt if you hold in-state issues.
- Their five-year cumulative default rate is extremely low at about 0.18%, making them historically safe for taxable accounts.
Always Compare Tax-Equivalent Yields
- Convert muni yields to tax-equivalent yields by dividing the yield by (1 - your marginal tax rate).
- Use the tax-equivalent comparison to decide if munis beat taxable bond ETFs with similar duration.
Don’t Buy Munis If After-Tax Yield Is Lower Than Cash
- Consider shorter-duration muni ETFs if you want lower interest-rate sensitivity, but check tax-equivalent yield versus cash.
- Avoid short-term munis when their after-tax yield is below taxable cash alternatives.