In the immediate years ahead, many believe income taxes are likely to increase, particularly on upper-income groups.

There is a most compelling case for municipal bonds, moving forward: with effective tax rates for upper-income filers likely to reach (or exceed) 50% -- reducing your tax obligation on a portion of your portfolio by 50% is no modest achievement.

We believe bonds are the wallflowers of the investment world. When the economy is growing, which is the normal state, stocks are usually increasing, or at least appreciating mildly. During these periods, the focus is mostly on stocks, the growth investments with more volatility (hopefully upward).

Conversely, when a recession hits, investors, some of whom were burned badly by the decline, get so turned off to investing that they shift their money to cash/certificates of deposit in a wholesale way, often bypassing the bond option.

That may be a mistake, in our view.  Attractive federally tax-free rates may add up over decades, and high-rate bonds have the double benefit of smoothing-out or offsetting riskier investments.  For the highly taxed, the municipal bond portfolio can be an excellent source of retirement or pre-retirement income.