Fixed Income Portfolios - For Conservative & Senior Investors
Bond Funds
All retired investors, and most of those approaching retirement, should always have enough money in fixed income investments so they could live off this side of their portfolio for a number of years. This way you will never need to sell any of your stock investments – or worry about them – when the market is low. Right now the bond investments we are making at Secure Retirement are paying unusually competitive interest rates. In addition, we expect to make additional profits as the prices of the bonds we own increase.
Through the end of 2008 we had only invested in the safest types of fixed-income funds. Two-thirds of our bond money was invested into three funds, Hussman Strategic Total Return, TCW Total Return Bond, and the Federated California Municipal Income Fund.
The Hussman Fund is designed to deliver steady returns no matter what happens in the economy. For example, in 2008 it made 6.3%. It has never gained less than 5.7% in a year, and has made over 12% in one year – safely. Plus, if (when) inflation becomes a problem, this fund is designed to protect against this serious risk.
Our other two bond funds were paying 7.22% in taxable income (the TCW fund) and 5.14% in tax-free income (Federated) at the beginning of the year. Given all the dangers in the economy, I would be satisfied with these earnings this year – particularly when one considers that these are very safe funds. At the same time, we actually expect to make up to double these amounts as the prices of the bonds these funds own increase in value.
In addition, in April we began to re-invest into Loomis Sayles Bond fund. This fund is paying 8.9% in interest at this time (May, 09). Loomis Sayles Bond has been the highest-returning bond fund in the country over the last 15 years. It is considered a “multi-sector” bond fund, meaning it can invest in nearly any type of bond. While we consider it to be the best bond fund available, it typically does poorly during recessions. As a result, at Secure Retirement we sold this fund at the end of 2007. It then had significant losses in 2008 – which we avoided. Now that the most serious problems in fixed income markets appear to be largely behind us, we are now purchasing this superb fund again. At the end of the last turbulent time in the economy, in 2003 it gained 29%. We expect similarly high returns as the economy rebounds from this recession.
In summary, in 2009 we expect to receive competitive returns from our safe bond funds. Looking forward, when the economy is again on firm ground we expect inflation to return – perhaps with a vengeance. Inflation is the single greatest risk to retirement portfolios and the bond market. Therefore, when this economic downturn is over we anticipate changing our bond holdings to provide pure inflation protection.
