For many income-oriented investors, it's not what they earn that's
important…it's what they keep. With municipal investments, the
income you earn is exempt from federal income tax. So you keep more of
what you earn. Even if you're taxed at a lower rate, the difference in
income can be substantial when taxes don't take a bite out of your
earnings.
The investments shown are hypothetical and are based
on federal income tax rates. This chart is for illustration only and
does not predict or guarantee the
performance of any Wells Fargo Advantage Fund. Income may be
subject to state and local taxes, and, for certain investors, the
Alternative Minimum Tax.
How Do You Determine Whether
Municipal Investing Is Right for You?
There are several factors you should consider when choosing a taxable OR
tax-exempt income investment, like the time horizon for your investment,
and your tolerance for risk. The higher the level of income you want to
pursue, the greater level of price fluctuation you should be prepared to
tolerate. Consider long-term investments or longer-term average maturity
funds – which tend to have greater price fluctuation – for
longer-term goals.
The decision between whether a taxable or tax-exempt
bond or bond fund is right for you can be made in part by comparing the
yields. Since the yields of municipal investments and your tax rate may
change over time, you should constantly reevaluate the benefits of
municipal investments in your portfolio. To discover how a taxable and
tax-free yield compare, use the following formula:
The Benefit of Municipal
Investing calculator allows you to convert a
federally tax-exempt yield1 into a taxable equivalent –
therefore you can compare apples to apples.
Take a Look at the Following Hypothetical Example
|
Yield |
Taxable Equivalent Yield
(in the 35% federal income tax bracket) |
| Taxable money market fund |
1.50% |
— |
| Federally tax-exempt money market fund |
1.25% |
1.92% |
An investment in a money market fund is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government
agency. Although the Wells Fargo Advantage Money Market Funds
seek(s) to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in a money market fund.
