When volatility taxes your patience and your portfolio

We continue our tax-time chart series with a look at how municipal bonds help manage against equity market volatility.

Last week we discussed how municipal bonds can be an attractive source of after-tax income, no matter what your tax bracket. In the second of our five-chart series, we’ll look at how they offer a ballast against equity market gyrations.

Volatility has clearly been the word of the year for stock market investors in particular. After sitting relatively quietly in the teens throughout most of 2012 through early 2015, the VIX Volatility Index has frequently breached the 20s in 2016. It’s an uncomfortable reality for most investors, and it begs the question:

Is your portfolio built to withstand the inevitable equity market ups and downs?

A “yes” answer would mean your investment mix contains an allocation to bonds for equity ballast, a prudent idea and one well-articulated by my colleague Matt Tucker. One type of bond has a track record of particularly low volatility — municipal bonds. As shown below, they have provided a compelling offset when equities decline.


Peter Hayes, Managing Director, is head of BlackRock’s Municipal Bonds Group and a regular contributor to The Blog.

Investment involves risk. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. There may be less information available on the financial condition of issuers of municipal securities than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. A portion of the income may be taxable. Some investors may be subject to Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of March 21, 2016, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to pass. Any investments named within this material may not necessarily be held in any accounts managed by BlackRock. Reliance upon information in this material is at the sole discretion of the reader.