Municipal bonds (commonly known as “munis”) are debt securities issued by state and local governments, and their agencies and authorities, to fund projects ranging from hospitals and schools to highways and bridges. Munis have been widely viewed as being primarily attractive to investors in high income tax brackets as the interest payments received from the bonds are typically exempt from federal and, in some cases, state and local taxes. But munis—which in 2018 constituted about $3.8 trillion in total assets with 54,000 issuers and one million securities—aren’t strictly for the affluent.

The perception that muni bonds are an appropriate investment vehicle solely for the wealthy was illustrated by a recently conducted national research study from BNY Mellon Investment Management that found nearly half (44%) of Americans surveyed believe muni bonds are primarily intended only for high-net worth or ultra-high-net-worth individuals. The “munis are only for the wealthy” misconception resonated even more so with younger investors and those with fewer assets. For example, 47% of those with investible assets of less than $50,000 (including retirement savings, not including value of primary residence) believe munis are intended as an asset only for the wealthy compared with just 39% of those with over one million dollars in investments. And 54% of millennials (defined by the study as those between the ages of 21-38) held the same belief vs. 35% of their baby boomer (defined by the study as those between the ages of 55-73) counterparts.

There is detailed taxpayer data, however, telling a different story than “munis are only for the wealthy.” According to Internal Revenue Service data (all filed returns) for tax year 2017, approximately 2.6 million returns reporting the receipt of tax-exempt interest were from filers with adjusted gross incomes (AGI) under $100,000. And more than 1.6 million returns reporting tax-exempt income were filed by those filers with an AGI in the range of $100,000 to $199,000.  These two AGI groupings combined represented 70% of filers reporting tax-exempt income on their returns.

Beyond tax advantages, there are several other reasons why investors may want to consider municipal bonds, including:

• High-Quality: Munis are generally a lower risk investment* when compared to other asset classes such as equities or corporate bonds because they’re backed by a state or local government’s ability to levy taxes or revenue linked to essential services. Indeed, the 10-year average cumulative default rate for all investment grade municipal bonds is 0.10% versus 2.28% for similarly rated corporate bonds. (Moody’s Investors Service, as of July 2018, average corporate debt recovery rates for senior unsecured bonds 1987-2017: The category shows the average performance of muni cohorts over a 10-year period.)

• Portfolio Diversification: Munis have had lower return correlations compared to other asset classes and indices. For example, historically, municipal bond returns have generally been negatively correlated to S&P 500 returns, making these bonds a sound portfolio diversifier for investors.

• Less Sensitivity to Interest Rate Environment: Municipal bonds have historically demonstrated defensive behavior relative to U.S Treasury securities during rising rate environments and dislocations in the muni market are typically rare, brief and technically driven. (Bloomberg Barclays, QA Direct by Refinitiv, Firm data as of September 30, 2019 and Investment Company Institute and Bloomberg Barclays Muni Index as of September 30, 2019.)

• Supporting the Public Good: When putting their money in munis, investors are quite literally concretizing their investment by helping to build and improve communities. One of the most interesting and tangible aspects about the municipal bond space is how 75% of U.S. infrastructure is funded by this asset class (Municipal Securities Rulemaking Board). This means that every time someone passes a bridge, drops their children off at school, or visits a loved one in the hospital, they’re likely seeing muni bonds at work. In addition, there is an inherent ESG (environmental, social, and governance) aspect to muni investing. Projects financed with municipal bonds align well with socially responsible and sustainable missions including water treatment plants, affordable housing, and primary and secondary education.

Because the muni market is so fragmented with a multitude of issuers and outstanding securities, active management has a significant role to play applying thorough credit analysis and an “institutional approach” to sourcing muni bonds. Whether the investment objective is tax exempt interest, portfolio diversification or supporting communities, munis are not just for millionaires.

Daniel Rabasco is managing director, head of municipal bonds at Mellon, a BNY Investment Management investment firm.