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I'm trying to help my dad make the wisest decision he can about how to invest funds he just received on an individual Bond that was called early. He likes to buy highly rated (AAA)Muni Bonds but right now it looks like he'd be looking at only about 4%-4.2% return on bonds with maturities from 7-9 years from now and up to 5% if he was willing to hold maturities of 20-30 years.

I was starting to direct him towards Vanguards Intermediate Term Tax Exempt Bond Fund (VMITX)but after reading many of the posts here I'm concerned that I might be setting him up for a loss in principle if he was to move into this fund at this time.

Morningstar rates the fund as 4 stars--below average risk, above average return. It's average return has been 4.52% over the last 3 years (4.5% after taxes). I know he'll still have to pay state tax on this fund, though it will be federally tax free.

My dad uses the interest checks from his investments to pay monthly expenses, but doesn't intend to touch the principle for the foreseeable future.

Can anyone provide some advice so I can help him make the most informed decision?

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