The experts still tell us we should allocate our retirement portfolio to 60% stocks, 40% bonds, give or take, depending on your age.
But how does a sensible investor do that in this era of zero percent interest rates? Do bonds really have a place in your portfolio anymore? It's a reasonable question to ask.
If you put 40% of your money in safe (i.e. U.S. Treasury) bonds that are unlikely to default, it's essentially dead money, unless you're okay with earning less than 2% a year over the next 10 years.
If you want to earn more than that, you'll have to go way out on the risk curve. And if you're going to do that, you're probably better off putting your money in blue-chip equities or ETFs that pay high dividends. They're arguably safer than junk bonds, and the dividends will cushion your portfolio if stock prices go down.
But then there goes your diversification. You'll have 100% of your portfolio in equities. What happens when the stock market finally corrects? Will your bond portfolio save you? Continue reading "Dude, Where's My IRA?"