Take Advantage of Tax-free investments

If you are in a high tax bracket, you should consider investing in municipal bonds issued by your state of residence. These bonds are generally exempt from all taxes as opposed to U.S. Treasury securities, which are only exempt from state and local taxes.

For example, if a municipal-bond mutual fund is paying about 4% and you're in the combined federal and state 40% tax bracket, you'll find that you need a taxable yield of more than 6.67% to beat the tax-free fund's yield.