I don't like bonds. I never have.
While I am not much of a risk-taker, I just don't understand why I should settle for the low returns of a bond fund when, by waiting awhile, I can ensure a greater return sticking with stock funds. Jonathan, at My Money Blog attempts to show me why. He uses plenty of eyecatching charts and graphs, which I can almost understand.
But then, along comes Consumer Reports, one of the more reliable sources of information. Consumer Reports does not allow access to its site without a subscription, but issues are widely available at the public library. Check out February.
One article talks about common money mistakes made in retirement. And there, as # 1, is putting too much (not to mention, any) retirement money into bonds or bond funds.
Consumer Reports analyzed a range of stock-and-bond portfolios to see how they would have performed from 1940 through 2006. In one hypothetical, they assumed a 65 year old retiree would have $500,000 to invest; in the other scenario, they reduced the retirement funds to $250,000. They also assumed a withdrawal rate of 3% per year, and adjusted returns for inflation. Finally they assumed both a 20 year and a 35 year retirement.
What they found was that an all-stock portfolio provided $750,000 more than an all-bond one over the course of retirement. For the retiree who had saved less, the all-stock portfolio returned about $360,000 more.
Their final recommendation was to weight one's asset mix as heavily toward stocks as one's comfort level allows, certainly no more than 30% in bonds ever.
While I recognize that there will always be periods when my stock funds lose money (like, say, NOW!)it still makes sense to me to avoid bonds.