It has been said that 2015 was the hardest year to make money in 78 years. Stocks had a total return of 1.38% for the SP because of dividends, but a slight negative return if one counts only the price. The best assets in 2015 were investment grade bonds. Of this class the best sub-class were Municipal bonds. These bonds are often reported in the press on their yields before adjusting for tax. If the yield was adjusted for the tax-free benefit then the investment grade Muni index total return of 3.19% would have been roughly a taxable equivalent of 4.8%, assuming a taxpayer is in the 33% combined state and federal marginal tax bracket and that the bonds were issued by their home state and are AMT tax-free. Some Californians are in the 56% tax bracket so for them an in-state Muni bond with a 3.19% total return would be the taxable equivalent of 7.25%. This assumes all of the 3.19% total return came from the yield; in some cases part of the return could have been from appreciation of the bond which is a taxable capital gain when sold.
The risk for 2016 is that Puerto Rico will default on its massive debt and taint all Munis and thus investors may find that even good Munis could go down slightly. During the Detroit default of July, 2013 Muni bonds went down in price but that may have been a systemic event, that hurt all types of bonds, caused by the Federal Reserve’s “Taper Tantrum”.