It’s high season for economic outlooks, and in keeping with that spirit, we’d like to offer our own fearless 2019 forecast for municipal bonds: The vast majority of munis will generate a steady stream of tax-free income for investors.

Yup, they will perform exactly as expected.

2019 Forecast for Municipal Bonds

Why predicting the economy doesn’t help

It may be fun, even entertaining, to read the various predictions on how interest rates will move this year. The same holds true for a host of other economic statistics, which will also prove to be irrelevant to bond investors.

Aside from amusement purposes, those prognostications are never helpful. They’re typically wrong, and clairvoyance has never been a viable long-term investment tool.

But this comes as no surprise to long-time municipal bond investors, as their success doesn’t depend on the soothsaying of strangers or a forecast for municipal bonds.

Aside from an exceedingly rare number of challenges, munis continue to do the job they were created to do more than a century ago. And the buy-and-hold strategy of investors has paid off handsomely for generations, regardless of the economy’s twists and turns.

2019 forecast for municipal bonds: Vast majority will pay

One recent article, typical of most year-end wrap-ups, asserted that practically no asset class rewarded investors in 2018. Lamenting the crushing of equities, a cooling real estate market and a rise in short-term interest rates, the piece suggested keeping your money in cash, CDs or money-market funds, especially, as the article asserted, clouds seem to be gathering on the horizon for 2019.

After all, the author pointed out, one-year CDs pay almost double the rates they did for most of 2018. Next year, he thought, “cash will be king.”

Indeed, the sectors cited didn’t perform well in 2018 (contrary to predictions at the end of 2017). But is keeping your investment dollars in cash the solution?

Consider that high quality municipal bonds are currently available yielding 4.00% tax-free, while taxable 30-year Treasury bonds are yielding less than 3.00%. In many states, the taxable equivalent yield exceeds 8.00%.

No crystal ball required.

As we’ve noted countless times over the years (for example, “Muni Investing Success Doesn’t Require a Ph.D.”), your money should work hard for you, always. Leaving it in short-term parking places, earning paltry returns, while waiting an indeterminate time for an unknowable signal to invest in an unnamed investment makes little sense.

It’s staggering to consider how much tax-free income muni investors would have sacrificed by following this advice.

As always, our prediction for a successful municipal bond investment in 2019 is: Buy bonds when investment dollars are available, and never try to time the market, which should be clear that even the so-called experts can’t do.

James A. Klotz is the President of FMSbonds, Inc. Email the Author 01/09/2019