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While Treasuries tend to be the first bond category beginning investors consider, they aren’t always the best option. Treasuries perform best in tax-deferred accounts, since the US government treats interest payments as regular income. Also, they can decrease in value during periods of inflation.

An alternative is high-rated municipal bonds. These promise Treasury-like safety from default as well as some important tax breaks. Buy bonds issued by municipalities in your home state, and you usually dodge federal, state and local taxes — the “triple tax free” promise that makes municipal bonds a favored income vehicle for the well-to-do.

Even for the rest of us, municipal bonds make good sense. Assume you’re in a hypothetical 30% federal tax bracket. A municipal bond yielding 5% earns just as much — after federal taxes — as a Treasury bond yielding more than 7%. These days, you will be hard-pressed to find a 7% Treasury bond!

“If someone were to get a fixed-income portfolio and their money were sufficient, I would think that they should own outright some high-quality municipal bonds,” says Gayle. You can gain extra peace of mind by ensuring you buy insured or triple-A-rated general-obligation bonds.

The main problem with municipal bonds is getting your hands on them. A round lot of any particular bond goes for as much as $250,000. If you don’t want to buy that volume, you pay a higher markup. Financial planners see $100,000 as just about the smallest allocation that can go into individual municipal bonds.

You can go the mutual fund route, as municipal bond funds accept smaller amounts. But be careful to know exactly what you’re buying. Fund managers may have a different definition of “high quality” than you might have for yourself. Check their investment criteria.