• Skip to main content
  • Skip to primary sidebar

Ask Liz Weston

Get smart with your money

  • About
  • Liz’s Books
  • Speaking
  • Disclosure
  • Contact

Stick to an investment plan for best results

August 19, 2013 By Liz Weston

Dear Liz: If I plan to stay invested for more than 15 years and I can tolerate the ups and downs of the market, why would I want to put any of my 401(k) money into bonds instead of putting it all in various stock funds? The bond funds in my 401(k) have a five-year return of 5% to 6% whereas the other funds are 8% to 13%.

Answer: If you look at the more recent performance of those bond funds, you’ll notice that their returns are considerably worse. Many have been losing money lately as interest rates have risen. That poor performance may worsen if the economy improves and rates continue to rise.

But you need to consider more than recent performance when allocating your portfolio. Bonds and cash can cushion your account against big downturns in the stock market. That can help keep you from panicking and selling at a bottom.

If you’re as risk tolerant as you think and decades away from retirement, you might be able to put as little as 10% of your portfolio into bonds and cash. If you’re 15 to 20 years from retirement, a 20% bond allocation may be more prudent. A fee-only financial planner can help advise you about sensible asset allocations, or you can check out the stock and bond mixes of target date funds offered by leading mutual fund companies (such as the Vanguard Target Retirement 2030 Fund, if you’ll be retiring around 2030).

Related Posts

  • Q&A: Investment returns

    Dear Liz: In a recent column you mentioned a fund that shows a return of…

  • Q&A: Weighing investment choices

    Dear Liz: I felt your advice about using an inherited IRA to pay off a…

  • Q&A: Investment advice websites

    Dear Liz: I invest in real estate and have a secure pension, but I also…

  • Q&A: Investment advisor’s fees

    Dear Liz: Two years ago I rolled my 401(k) into an IRA at the suggestion…

Filed Under: Investing, Q&A Tagged With: asset allocation, bonds, Investing, Stocks

Primary Sidebar

Search

Copyright © 2025 · Ask Liz Weston 2.0 On Genesis Framework · WordPress · Log in