It seems a general rule of thumb for retirement is to have about a 40/60 split between stocks and bonds. In this economy, is having 60+% of your retirement savings in Bonds, in my case, Vanguard Total Bond Index a good idea? And, if the Fed raises the interest rate to 4 or 5% in the coming months, how would you expect Bonds (VG) to react?
Thanks for any insight.
I have some concerns about bonds right now. Also, it always seems like the types of bonds that are smart to have, are expensive to buy because of supply and demand. I think that "LOL!" and others have addressed what we might expect with a rise in interest rates.
I don't feel at all secure with my bond allocation.
About 1/3 of my bond holdings are part of my big chunk of Wellesley (VWIAX). This is an actively managed fund, so there I am at the mercy of Wellington Management and I hope these demigods of Wellesley, such as they may be, continue to make wise decisions.
Another 1/3 of my bond holdings are in the TSP "G Fund", which is a treasury fund available only to military and civil service (as part of our benefits) and is guaranteed not to decrease in share price. However, for the first time in the decades since inception it has not kept up with inflation in the past year or two.
The last 1/3 of my bond holdings is split between a big chunk of VBMFX Total Bond Index, a somewhat smaller chunk of VFSTX Short Term Investment Grade, and cash. If I invest more of that cash in bonds, I would probably choose VBMFX. But would that be smart? I am not sure. If the dividends hold up, then sure, but who knows if that will be the case. In the (very probable IMO) event that we have some inflation coming up, I will be in trouble unless my equities compensate, because I don't have TIPS or other inflation protection in my fixed income allocation. I am not sure they are a good buy right now.
Overall, I don't have a good answer to the question of where to put your fixed income money other than to pay attention to what other people (not me) say in this thread, and then
diversify within the possibilities that sound prudent.