Q: For retirement, it is recommended that your bond holdings should be the same as your age. I am 70 and noticed that my bond fund is now declining. What is your recommendation?
A: This is a real problem that we will likely hear more of as the Fed begins to limit further QE and back away from their bond purchasing programs. We still feel like we have sometime before this happens because the Fed has made it clear that they are still more worried about deflation than inflation.
On the radio show we talk about owning your age in “Income”. Bonds are one piece of the income story which also includes REIT’s, MLP’s, U.S. Royalty Trusts, Preferred Stocks, and Close End Funds. Even once inflation is closer to reality you shouldn’t walk away from owning bonds all together. A better strategy would be to own individual corporate, floating rate, international, and high yield bonds that focus on the shorter end of the yield curve. I would stay away from “plain vanilla” bond funds as much as possible.
I hope this helps… if you ever want to come in and have one of our advisors look at you allocation just let me know. We offer a free one hour consultation.