Warning About Long-Maturity Bonds

| March 21, 2014 | 1 Comment | Email This Post Email This Post
Doing A Spring Clean-Up In Your Retirement Plans

Beware of Bonds.

* Beware of Bonds. Yesterday, the Fed’s chief Janet Yellen signaled the the Fed may raise interest rates within the next year. The bond market has already reacted.

If you’re in funds that have long-maturity bonds — 10 years or more — you should switch to shorter maturities. Bonds lose value when inflation or interest rates rise. Make sure you’re not loaded up in bond funds with high duration risk. They will lose value as rates climb.

Six and half feet of snow has nearly all melted here in Chiberia (Chicago) and my thoughts turn to spring.

Time to think about baseball, lounging on my patio, the beach, barbequing and beer. But the prospect of watching another dismal season of the Chicago Cubs, grilling in the cold and freezing until the warm weather finally arrives in June has me thinking about other things — like a portfolio clean-up.  Here are some ideas on how to prune and spruce up your retirement portfolio:

* Rake up Redundancy. Do you have an S&P 500 fund, a large growth and mega-cap U.S. stock fund? Well, you don’t need all three, because they probably all hold the same stocks. Just buy one index fund to own all of the big companies throughout the world.

The Vanguard Total Total International Stock ETF (VXUS) owns more than 5,500 big companies across the world. They only charge you 0.14% annually for management expenses. It’s an all-in-one fund that should be in all moderate-risk portfolios as a core holding. I own a similar fund in my retirement account.

* Dump the Losers. The S&P 500 Index was up 32 percent last year. How did your U.S. stock funds do? If they didn’t even come close, time to switch to a passive index fund like the SPDR S&P 500 fund (SPY), which only charges 0.09% in annual expenses.

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