Asset Allocation At or Near Retirement?

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Leif
Posts: 3149
Joined: Wed Sep 19, 2007 4:15 pm

Re: Asset Allocation At or Near Retirement?

Post by Leif »

InvestorWD wrote: Please let me know what is wrong with my understanding on bond funds ?
Welcome to the forum!

You can take a look at the following Vanguard Site

Vanguard Allocation Models

At the top of that page the worst loss in 100% bonds from 1926-2013, in a calendar year is -8.1%

At the bottom of that page the worst loss in 100% stocks from 1926-2013, in a calendar year is -43.1%

You can read the bottom of page to see what Vanguard used for stocks and bonds in their research.

Based on that and other measures, such as standard deviation, we know in the past stocks are more volatile then bonds.

Many have predicated, for a while, that bonds are in for a big drop. One day they will probably be right. But at this site we do not try to time the market, be it in stocks or bonds.

One nice feature of bonds in general is that when the price drops and interest rate increases, giving you more interest over time.

Question:
Would you rather own a bond fund where the price increases then levels out and the interest rate decreases and stays low forever.

Or would you rather own a bond fund where the price decreases then levels out and the interest rate increases and stay high forever.
InvestorWD
Posts: 17
Joined: Wed Jun 25, 2014 12:52 pm

Re: Asset Allocation At or Near Retirement?

Post by InvestorWD »

Hi Leif and Livesoft,
Thank you so much for helping with my understanding on bond funds. And also to the OP - sorry didn't mean to highjack your post :), but my question is related to near retirement investing in bond funds, so that is why I decide to post my question in this discussion.

I am embarrassed to admit that this is the first time I bought a mutual fund (at mid age). I just bought a target income fund (80% bond, 20% equity in my IRA). When I told my co-worker about the fund purchase, he said NO, you should not buy bond heavy fund now, because the interest rate will rise and bond fund price will go down. When I heard that I was a little freaked out, because I have very little knowledge of bond fund interesting. That was the reason I decide to post the above question.

Now with your explanation and help, I think I understand better (will keep reading and learn) - mutual fund is for long term, so I will hold on to my target income fund and hope for the best !

Thanks again!
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