Best Fixed Income Choice?

What is the best choice of fixed income securities for somebody in a high tax bracket? Treasury or Muni bond? Buy bond direct or a bond fund? Any other ideas?

Munis of course are free from federal and even state taxes if they are chosen properly. Of course at this period in time fixed income investments are not paying a great deal. In fact they are not even keeping up with inflation. They can also be used to reduce your tax bracket if you are judicious.

One of my favorites at the moment is t-bills--free from local taxes but not federal. Currently at about 4.8%. Sort of a short term parking place during uncertain times.

There are +s and -s to both buying bonds directly and buying bond funds. The bond funds charge expense ratios, some rather high but they do offer diversity and they get better pricing than you will. Also they provide a steady stream of income without a lot of hastle. Most pay dividends monthly.

Buying directly, you can pick and choose but the prices you will receive will not be too good because you are buying retail +.

You might want to consider municipal bonds since some of them are exempt from federal taxes.

just use TEY
taxable equivelent yield... or net yield to compare the diff instruments.

for example... fed tax rate is 25% state works to be about 3%.. this means 28% of your interest goes to taxes.

so a t-bill yield ing 5% *.72 (1-taxes) = 3.6% net yield

muni yielding 4% fed and state tax free would be 4% / .72 (1-taxes)= 5.55% taxable equivelent yield

this way you can compare equally.

high tax bracket muni's usually make the most sense.... I prefer individual bonds... but it depends how much you have to invest and if you can diversify it properly... if not a fund makes more sense.

But its a personal question that depends on your portfolio and goals that will ultimately decide what is best for you... talking to an advisor would make sense.

Treasury bonds offer the highest possible safety, but Municipal bonds are nearly as safe, so go for the one that shows the highest REDEMPTION yield after tax.

A bond fund will have a professional manager and may qive you some capital appreciation, but on the other hand it can also fall and many do. It will also have annual charges. I would only go for this if it pays the same or higher interest. Beware also that some of these funds contain a proportion of junk bonds too.