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How do I determine if a bond fund is right for my portfolio?

I'm 63 years old and unemployed. I'm not working because of health issues. I did not save much for retirement. I have 100 shares of a specific stock, a 401(k) with a $50,000 Vanguard Institutional Index, and $12,000 in a Roth Schwab Total Stock Market Index. Should I have a Bond Fund and if so, what kind?

Retirement Savings, Bonds / Fixed Income
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March 2017

Your choice of stock mutual funds is excellent. However, there is room for bonds in your investment portfolio to mitigate risk. The best place for them is your 401(k). I recommend that bonds be held in tax sheltered accounts like 401(k)s since their distributions are taxed as ordinary income. Bond interest, therefore, benefits more from the tax shelter because the tax savings is greater than for stocks. I'll suggest that you buy the iShares Universal Bond Index ETF (ticker IUSB). It's a "one stop shop" for fixed income because it includes the vast majority of dollar denominated bonds. Its management fee is only 0.08%.

Your 401(k) may have limited investment options. Since your 401(k) is no longer active, you can move the assets therein to an IRA Rollover account. You may want to transfer it to an IRA account at a discount brokerage. There, you will have a wide range of investment options including the ability to buy ETFs like IUSB.

You also may want to consider the liquidation of your individual stock holding. I will assume that your income this year is quite low and, thus, you will be able to sell those 100 shares without paying a capital gains tax. It doesn't make sense for you to bear the extra volatility that an individual stock brings to your portfolio. Most single stocks have 2 to 3 times the volatility of the index funds you already own. That's because portfolios of stocks cancel out much of the specific risks that individual companies face. Once sold, you can decide whether to reinvest in an index fund or keep the proceeds as cash reserves to pay bills.

March 2017
March 2017
March 2017