How safe are municipal bonds for passive income investing?

Benjamin Z Miller, Answer the Question :
How safe are municipal bonds for passive income investing?

Good Question!

They are quite safe (on average). Their default rate is extremely low. While you may benefit from a very low default rate if you choose to buy municipal bonds, you also are getting a low rate of return. For example, leaving the money in a bank certificate of deposit would also have an even lower default rate.

But to answer your question, the default rates are far less than 1%. But think about if all you care about is default rate or if you also want to get some rate of return. Many of them don’t even offer a real rate of return after inflation is factored in. Is that low default that important that in some cases you will accept a negative real rate of return?

I think corporate income bonds particularly emerging markets or those backed by hard collateral such as mortgages or real estate might be worth doing some thinking about.

I wish you good luck with your investing!