The theme this week on the One Minute Retirement Tip podcast is should I invest in bonds now?

First off, to make sure we’re all on the same page here, let me backup and explain what I mean by investing in bonds. Technically, we’re talking about fixed income, but you can think about bond investing as everything from CDs that you buy at the bank, to corporate bonds, U.S. Treasury Bonds, or bond funds. 

There are a lot of different ways to invest in bonds, and it’s important that you at least have a basic understanding of bonds, since this asset class will likely be a critical component of your investment portfolio in retirement. So it’s important that you have a basic knowledge of how to invest in bonds and why you should consider bonds for your retirement portfolio in the first place. 

Some people object to bonds because the returns are lower than stocks. And that’s true. Over the long-run, you might only expect to receive about ½ of the amount in return that you could earn from investing in stocks. 

But here’s why owning bonds is worthwhile: Bonds provide income and stability - two very important characteristics for an investment portfolio in retirement. 

First of all, there’s income - Bonds provide steady and reliable income as long as you invest in high quality bonds. This becomes critically important in retirement, as you’ll want to make sure that if you need to pull out $40,000 of income annually from your investments, that a significant portion of that is coming from the income that’s already baked in. That way, you won’t have to rely solely on growth to provide the income you might need from your investments. 

An important but often overlooked benefit of owning bonds is that they provide stability during downturns in the stock market. As long as you stick with high-quality bonds, you won’t have to worry too much about your bond portfolio cratering in value in the next recession. But rather, it provides some much needed stability from your stock portfolio that might be dropping 10, 20 or 30%.

There are a lot of other reasons to own bonds in retirement - like diversification and tax advantages for certain types of bonds, but income and stability are the key characteristics that I always come back to when clients ask me why they can’t just put everything in the stock market. 

That’s it for today, Thanks for listening! 

My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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