I’ve mentored several friends and relatives in starting up small businesses. The first years were always a struggle, because they were trying to find ways to efficiently bring in new customers. Once a way was found, things got much easier. Developing a back end (i.e., selling other, usually more-expensive products to existing customers) is relatively easy, as is refining operations.

A typical business start-up of this kind will break even or lose a little money in year one, make a decent salary for the owner in year two, and provide a substantial bonus—in addition to a good, arm’s-length management salary—in year three. After that, it’s usually straight uphill.

Munis have tremendous tax advantages. Interest paid is not subject to federal, state, or local taxes. However, many savers will find the tax advantage caused them to invest outside their comfort zone. Calls, volatility, and insecure principal may be more than you can handle.

Trust issues are worse for muni funds than for other bond funds. Muni funds offer the advantage of diversification and professional management.

Unfortunately, the fees eat up as much as 25 percent of your interest. This is seldom worthwhile. Muni fund managers rarely outperform a list of unmanaged bonds. Many also try to rev up returns with lower credit issues, including junk munis, and borrow against the fund to increase investments in an attempt to time the market. These tactics are not likely to improve your sleep.

Municipal bonds also have call provisions that allow the issuer to redeem bonds before their term expires. For example, a 30-year bond will typically have a seven-year call. If interest rates have declined over the seven-year period, the state will redeem the bonds and then issue loweryielding securities. Obviously, this is not in your favor, and you may find it irritating.

Munis are also subject to wide swings in value. State economies are more volatile than the national economy. When a state economy is booming, state tax revenues are high and there is little need to issue munis. At the same time, state residents’ incomes are high. They want munis, which pay tax-free interest. The combination of low supply and high demand leads to overpriced, scarce bonds. When a state is in recession, tax revenues decline.

The state issues a hoard of bonds to keep going just at the time when it can least afford to make interest and principal payments. Muni interest rates rise to compensate for the reduced security. Older munis lose value.

Consider how you react to wide price swings.

Often, managed funds turn out to be different than expected. Savers primarily want their principal returned when a note or bond matures. Some funds are managed without regard to principal fluctuations. Many savers have found the government fund they purchased paid out both principal and interest so that at the end there was no principal left. Alternatively, the manager of the fund borrowed extensively to juice the returns from the fund and instead lost a substantial portion of the principal. You are likely to feel betrayed if you unwittingly purchased a fund with fluctuating principal values.

Bond investors often experience regret and resentment when other asset classes have dramatic rises. Longer duration bonds cause the most distress. Savers who put money into 30-year Treasuries in 1994 received annual yields up to 8 percent. They had to stand by and watch as stocks returned better than 20 percent a year for the next five years. However, the dramatic decline in 2000-2001 may have given them some satisfaction.

Volatility is an issue with notes and bonds that mature in two or more years. Before OPEC, floating interest rates, interest rate swaps, floating exchange rates, budget surpluses, and electronic trading, treasury bonds had low volatility. Today, Treasuries can lose 20 percent of their value in a month. Savers waiting for bonds to mature will feel fear when they learn of the current value of their holdings. They must be able to process the fear and wait to maturity. Savers who cash out may have regrets and resentments when bond prices turn up again.