It's my week for spotlighting Walter Updegrave at Money Magazine. In this week's column, he addresses an issue that has confused me for years.
Namely, whether bonds have a place in my retirment mix, and if so, how much?
Ever since I first started seriously saving for retirement, I've avoided bonds. This comports with what Dave Ramsey teaches, and fit my own perception that I didn't have enough time left to have my earnings held back by conservative bonds when I could be investing it all in equities.
Ramsey suggests mutual funds divided evenly among growth, growth and income, aggressive growth and international funds. Note that he does not recommend buying bonds at all.
But I started getting cold feet in late 2009 as the recession was decimating my equity portfolio. At that point, while I left my equities alone, I divided future payments so as to put 50% of them into bond mutual funds. Right now, about 7% of my 401(k) and 403(b) monies are in bonds, and that percentage is growing.
Updegrave says that is typical of those of us who "fly solo" as we invest. We tend to take much more risk than we should or that we would be advised to if we got professional help.
I guess what I really want to know is if the professionals are correct? The obvious downside to a portfolio containing only stock mutual funds is if we have to retire just as the market is at a low, we won't have as much money available to us. But over the longterm, won't we be better off?
In the end, I just could not handle the level of losses my accounts were sustaining, and I am now opting for slower growth but less stomach-churning drops.
I have no clue if that's the right position to take or not.