| As you know, I've been pounding the table on bonds lately. Interest rates are at their highest levels in nearly a generation, which is finally allowing bond buyers to earn some real income. If rates decline next year (as many are expecting), that should lead to profits as well, as bond prices move in the opposite direction of interest rates. So if rates fall, bond prices will rise. Furthermore, bonds are less risky than stocks, because bondholders are guaranteed to get their money back at maturity unless the underlying company goes bankrupt. Stockholders have no such guarantee. But in exchange for the higher risk of owning stocks, equities owners typically make more money over the long term. Today, however, there is a unique opportunity to generate long-term stocklike returns with almost no risk. And to make it even sweeter, the IRS can't put its grubby hands on the money. Some municipal bonds (also known as munis) are currently paying more than 5%. Now, you may be thinking, "Wait a second... 5% is nice, but it's hardly a stocklike return." And you'd be right... partially. Since 1971, the S&P 500 has generated an annual return of 7.6%. But don't forget that dividends and capital gains are taxed, so an investor wouldn't have taken home the full 7.6%. Most muni bonds, however, are tax-free. You don't pay any federal tax on the income, and if you live in the state that issued the bond, you don't pay any state tax either. So when you look at a muni bond, you have to figure out the taxable-equivalent yield to see whether it makes more sense to buy a taxable bond with a higher return or a tax-free muni bond with a lower return. Today, you can buy a Missouri Highways and Transportation Commission (CUSIP 60636wnu5) May 2033 bond that has a yield to maturity - a common way to express a bond's annual return - of 5.42%. In other words, you can expect to earn about 5.4% per year for 10 years tax-free. | 
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