Best Bond Funds For Retirement

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My Favorite 12 Vanguard Funds For Retirees

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Fidelity Extended Market Index Fund

For investors who wish to have a total exposure to the U.S. stock market, the Fidelity Extended Market Index Fund offers additional opportunities, the fund holding smaller domestic stocks, which includes larger names that are not included in the S& P 500 Index.

The fund mimics the performance of its benchmark, so its returns have been in line with the index. As investors do not need to pay large management fees in index funds, they tend to pocket a greater percentage of fund returns compared to other funds.

The fund holds a total of almost $24.92 billion worth of assets invested in 3,102 holdings as of October 20, 2020 and a return of 11.24 percent within the past five years, and 12.05 percent in the past ten years.

The fund has a 0.05 percent expense ratio.

Fund #: Nuveen Select Tax

This bond fund is advertised as being for investors in higher tax brackets who can afford to take a little extra risk. The holdings in the fund have an average maturity of twenty years, so volatility is high for a bond fund. On a positive note, the yield is 3.5%.

Treasury bonds only yield around 1%, which is below the projected rate of inflation, so NXP doesnt buy them. NXP is a closed-ended fund, so new money doesnt flow into it. Only existing shares are bought and sold. No new shares will be issued, and buybacks are not allowed.

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What Are Municipal Bonds

A municipal bond is a debt issued by a state or municipality to fund public works. Like other bonds, investors lend money to the issuer for a predetermined period of time. The issuer promises to pay the investor interest over the term of the bond , and then return the principal back to the investor when the bond matures.

When Is The Best Time To Cash Savings Bonds

The 7 Best Bond Funds for Retirement Savers in 2020

The best time to cash savings bonds is after holding them for at least five years. You cannot sell them until after you’ve held them for one year, and if you sell before five years, you’ll owe three month’s interest as a penalty. Ideally, Series EE Savings Bonds should be held for at least 20 years in order to benefit from the guarantee that they’ll be worth double their face value.

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Downsides Of Bond Fund Investing

One of the biggest drawbacks associated with bond funds is interest rate risk. Generally, when interest rates rise the value of fund shares can diminish. That can reduce returns. Bonds with a longer horizon until maturity are typically more vulnerable to changing interest rates than short-term bond funds.

Why Invest In Bond Funds

The purpose of a bond fund is primarily to generate a steady stream of income through the interest payments generated by bonds. Bond funds offer a simple alternative to building your own bond portfolio. For example, instead of building a bond ladder that ensures accumulated monthly payments, an investor can invest in a bond fund thatll deliver this same level of payout.

The other instance in which a bond fund is useful is as a portfolio hedge. Investors seeking to bring stability to an equity-focused portfolio might invest in a bond ETF. Its a way to hedge against volatility, as well as create passive investment income that someone can reinvest in equities.

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What You Can Do Next

Theres no one right answerbonds or bond fundsfor every investor. The decision often comes down to the amount you have to invest, the preference for a professional manager, and the need for a predictable value at maturity.

Holding individual bonds generally requires more time and effort by the investor, but a Schwab Fixed Income Specialist can help get you started. For bond funds, knowing your risk tolerance and investment time horizon makes selecting bond funds much easier. The Schwab Mutual Fund OneSource Select List® can help streamline the process even further, enabling you to screen a high-quality group of funds based on these criteria.

1 When owning individual bonds, the Schwab Center for Financial Research generally recommends holding at least 10 individual issues. For non-government guaranteed bonds like municipal or corporate bonds, we recommend holding at least 10 different issuers as well, to boost the diversification benefit and reduce the impact if any of the issuers were to default. Since bond mutual funds and ETFs own many securities, the impact of one bond default would likely be less than for an individual investor owning individual bonds. While some bond investments may be made in denominations as low as $1,000 per bond, the appropriate amount to invest is best determined by an individuals investing goals and objectives.

Ishares Floating Rate Bond Etf

5 Best Fidelity Index Funds for 2021

The iShares Floating Rate Bond ETF seeks to track the investment performance of an index of U.S. investment-grade floating rate bonds with remaining maturities between one month and five years. Floating-rate bonds interest payments adjust to the changes in interest rates, making them attractive investments during periods of rising rates.

5-year annualized return: 1.39 percent

Yield: 0.87 percent

Fund assets: $9.8 billion

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What Is A Retirement Income Fund

A retirement income fund is a type of balanced fund that aims to generate income from stock dividends and/or bond interest. Most often, they are designed to be the terminal fund choice for people who have invested in a target-date fund.

Theres no single formula for retirement income funds. Included in our list are funds that range from allocating 100% bonds to as much as two-thirds to stocks. Some funds, such as the Wellington fund, could be used to manage a retirees entire investment portfolio. Others, such as the fixed income-focused choices on our list, are best used as component of a larger portfolio.

Typical retirement income funds put around two-thirds of their assets into fixed-income investments, with the balance in stocks. As part of the equity component, they generally offer exposure to non-U.S. assets, as well as Treasury Inflation-Protected Securities to hedge against inflation.

Total Bond Market Funds

A total bond market fund can form the core of a fixed-income portfolio. These funds track the progress of the entire bond market. This allows you to have a broad investment with a single fund.

If you are looking for just one bond fund to invest in, total bond market funds are a wise choice. Let’s unpack two good choices to consider.

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Vanguard Total Bond Market Etf

The Vanguard Total Bond Market ETF seeks to track the investment performance of a broad, market-weighted bond index. Youll get exposure to the taxable investment-grade U.S. bond market with about two-thirds of the portfolio invested in U.S. government bonds.

5-year annualized return: 0.89 percent

Yield: 3.09 percent

Fund assets: $80.8 billion

What Are The Benefits Of Investing In Bonds

The 7 Best Bond Funds for Retirement Savers in 2019

Bonds offer a host of advantages:

  • Capital preservation: Capital preservation means protecting the absolute value of your investment via assets that promise return of principal. Because bonds typically carry less risk than stocks, these assets can be a good choice for investors with less time to recoup losses.
  • Income generation: Bonds provide a fixed amount of income at regular intervals in the form of coupon payments.
  • Diversification: Investing in a balance of stocks, bonds and other asset classes can help you build a portfolio that seeks returns but is resilient through all market environments. Stocks and bonds typically have an inverse relationship, meaning that when the stock market is down, bonds become more appealing.
  • Risk management: Fixed income is broadly understood to carry lower risk than stocks. This is because fixed income assets are generally less sensitive to macroeconomic risks, such as economic downturns and geopolitical events.
  • Invest in a community: Municipal bonds allow you to give back to a community. While these bonds may not provide the higher yield of a corporate bond, they often are used to help build a hospital or school or that can improve the standard of living for many people.

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What Is A Fidelity Bond

Fidelity Investments commonly referred to as Fidelity is a financial services company based in Boston, Massachusetts. Fidelity is among the top global asset management companies in the world, known for its specialty in no-load actively managed mutual funds. They also offer Individual Retirement Accounts , and 401 retirement plans. Fidelity funds cover all mutual fund asset classes, from domestic to specialized sectors.

Buying And Selling Treasury Bonds

A Treasury note is sold by the Treasury Department via an online auction. Once the note has been purchased by an investor, there are two options. The investor can hold the bond until maturity, in which case the initial amount invested would be paid back when the bond matures. If the investor holds the bond to maturity, the amount that was invested is guaranteed to be paid back by the U.S. government.

The investor also has the option of selling the bond before it matures. The bond would be sold through a broker in the secondary marketcalled the bond market. However, investors should be aware that their initial investment is not guaranteed if the bond is sold early through the bond market. In other words, they may receive a lower amount than what they had initially invested.

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Fidelity Real Estate Investment Port

The Fidelity Real Estate Investment Port is for people who wish to achieve an income of above-average and long-term capital growth.

Usually, 80 percent of its assets are put into investments that are related to real estate. It is non-diversified and invests in both foreign and domestic issuers.

In the past year, the fund has a recorded return of -14.40 percent, 1.75 percent in the past three years, 4.94 percent in the past five, and 8.52 percent in the past ten.

Retirement Income Fund Vs Target Date Fund

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Target-date funds are designed to make investing for retirement as simple as possible. Generally speaking, target-date funds are constructed around a planned future retirement date, which is most often included in the name of the fund, like the Vanguard Target Retirement 2060 Fund .

This objective defines the important differences between these two types of funds. First, target date funds designed for retirement 20 or more years from now typically have a 90% stock and 10% bond asset allocation. While this aggressive allocation is ideal for long-term investors, its not well suited for retirees.

Second, target date funds change their allocation as the target date approaches. These changes shift the allocation more towards fixed income to reduce the volatility of the portfolio as holders get closer to retirement. These changes in asset allocation are known as a funds glide path. Retirement income funds do not change the asset allocation over time.

Target date funds are designed to offer a single fund solution for retirement planning. These funds invest in domestic and international stocks and bonds in one fund. In contrast, retirement income funds are not necessarily designed to be a retirees sole investment choice. Some on our list might serve that purpose, such as the Wellington fund, but thats the exception, not the norm.

The author held no positions in the securities discussed in the post at the original time of publication.

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Which Bonds Do Best When The Broader Market Is Falling

When the market faces a downturn, the bonds that hold up the best are typically those with the least amount of credit and interest rate risk. In other words, the more reliable the bond issuer, and the shorter the duration of the bond, the more resilient it might be against broader market weakness.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

Comprehensive Guide To Investing In Bond Funds

Bond funds can diversify your portfolio, but its important to understand how they compare to other investments. Like stocks or exchange-traded funds , bond funds have both pros and cons. They can be a low-cost option with consistent returns, but they also come with some unavoidable risk. A financial advisor can help you determine which investments belong in your portfolio based on your current financial situation and long-term goals.

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Invest Well By Keeping Things Simple

You dont need a lot of mutual funds or exchange-traded funds to build a solid portfolio.

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My friends are smart and hard-working. And, much to my chagrin, most of them have no interest in personal investing.

Yes, it can be confusing. Ads for new products and services are everywhere new personal finance apps pop up all the time and entities ranging from financial planners and traditional investment firms to robots want to offer you advice for a fee.

No wonder most of the people I know feel overwhelmed. They think about investing the way I do about eating leafy green vegetables: Even though they dont like it, its something they have to do.

Occasionally one of my buddies will ask me for guidance. A friend, who says she really didnt understand her financial advisers advice, handed me her brokerage statement and asked for suggestions. She promised to carry them out, as long as I kept things simple and kept her investments diversified.

No pressure.

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Best Bond Funds For Retirement

Best Bond Funds for Retirement Savers in 2018

What are the best bond funds for retirement?

Right now, youre probably wondering, what are the best bond funds for retirement?

Unfortunately, like just about every topic weve covered in this blog, we cant give you this answer because it does not exist. Every soon-to-be retiree has their own, unique set of retirement planning goals, their own tolerance for risk, and their own personal set of values that guide their decision when trying to figure out which entity they want to loan money to and for what purposes.

Sitting down with a certified financial planner to discuss your options is the best way to pick the best bond funds for YOUR retirement. Luckily, you can sign up for a retirement planning workshop from PlanningCommunity.org by clicking here and meet someone in your area who can get you started.

Next Steps: Making an estate plan can be overwhelming. We recommend attending one of our educational events. This tool will find one in your area.

Here’s how it works:

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Read our editorial policy to learn more about our process.

Savings Bonds Vs Certificates Of Deposits

Savings Bonds and CDs are both popular choices for risk-averse investors. They have a lot of similarities in that they are easy to purchase and offer interest rates that are fixed for periods of time. For short-term investors of less than one year, CDs are the better choice. You cannot cash out a savings bond until you’ve owned it for one year. Most banks offer CDs with a variety of terms that typically range from one month to five years.

There are many advantages to savings bonds though. You can purchase a savings bond today and allow it to grow for the next 30 years without worrying about what the interest rates are when your CD matures. Additionally, savings bonds offer tax advantages that CDs do not. Your interest earnings are not subject to state or local income taxes and may be exempt from Federal income taxes when used to pay for education expenses.

Currently, Series I Savings Bonds also offer rates that are substantially higher than most short-term CDs. Investors can take advantage of these higher rates and have full liquidity after just one year. While there is a three-month interest penalty if you redeem a savings bond in the first five years, many longer-term CDs have interest penalties that have higher penalties.

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Money Market Mutual Funds

These mutual funds own safe securities such as cash and very short-term debt, making them generally safer than either stock- or bond-based mutual funds but also lower-return. That said, unlike FDIC-backed money market accounts at a bank, money market mutual funds can lose principal, meaning its possible, though not likely, that you wont get your whole investment back.

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