US Private Families Should Revisit How Munis Fit Within a Broader Diversification Strategy

Many US private families reduced US tax-exempt municipal bond (muni) exposure in recent years as low yields, poor performance, and elevated volatility weakened the case for tax-exempt fixed income. That rationale now looks much less compelling. With yields higher and a more meaningful tax advantage of munis, tax-exempt bonds should play a larger role in the portion of the portfolio intended to diversify equity risk.

At the same time, effective portfolio construction in this segment of the portfolio should still balance tax-efficient income with broader objectives, including liquidity, downside protection, and diversified sources of return. In that context, some families with acute liquidity or spending needs may still benefit from modest exposure to cash or taxable fixed income, while selected diversifying strategies, including certain hedge fund strategies, can complement munis and support stronger after-tax portfolio resilience.

Read the rest of the publication here.