What type of investment would likely provide the least risk for a tax-sensitive investor?

Tax-exempt municipal bonds are particularly well-suited for tax-sensitive investors due to their tax advantages. The interest income generated from these bonds is generally exempt from federal income tax, and in many cases, from state and local taxes as well, especially if the investor resides in the state that issues the bonds. This tax-exempt status can result in a higher effective yield for the investor compared to taxable investments, like corporate or government bonds, making them an attractive option.

Furthermore, municipal bonds tend to be less volatile than equities and high-yield corporate bonds, which can carry higher risks due to market fluctuations and the credit risk associated with corporations. This lower volatility and the inherent tax benefits combined make tax-exempt municipal bonds a favorable choice for risk-averse investors seeking to minimize taxation on their investment returns.