A lot of investors use bonds for one simple reason: to generate income with lower volatility than stocks. One of the most common ways to structure this is through a bond ladder.

A basic Treasury bond ladder might look something like this: an investor splits capital evenly across Treasury securities maturing in one, two, three, four and five years. As each rung matures, the proceeds can either be spent or rolled into a new five-year Treasury.

Bond ladders can help match future liabilities or spending needs, such as retirement withdrawals or tuition payments. They can also improve cash-flow planning and liquidity management because investors know exactly when principal is scheduled to return.

The issue is that building a ladder yourself can be cumbersome. For Treasuries, many investors use TreasuryDirect.gov, the U.S. government's platform for buying bonds directly. The website, however, has developed a reputation for its dated interface, clunky navigation and poor user experience.

Some investors may instead seek higher yields through corporate bonds issued by companies rather than the U.S. Treasury Department. While these can be purchased through brokerages, individual bond trading comes with its own challenges.

Unlike stocks, bonds largely trade over the counter rather than on centralized exchanges. Pricing can be opaque, spreads can vary significantly, and retail investors are often dealing with institutional bond desks that have more information. There is also more complexity involved. Looking at the coupon and current market price alone is not enough because bonds can trade above or below their face value.

Investors also need to understand metrics such as yield to maturity, which estimates the annualized return if the bond is held until maturity. Duration is another key concept. It measures interest rate sensitivity. All else equal, rising interest rates hurt bond prices while falling rates help them.

To simplify things, asset managers packaged bonds into exchange-traded funds (ETFs), that benefits such as monthly distributions, diversification and stock-like liquidity with transparent bid and ask pricing throughout the trading day.

Traditional bond ETFs, however, come with one major limitation. Most hold evergreen portfolios designed to maintain a constant maturity profile. As holdings age and fall outside the desired maturity range, they are replaced. That means investors cannot simply hold the ETF to maturity and automatically receive principal back the way they would with an individual bond.

To bridge this gap, ETF issuers launched target maturity bond ETFs. These income-building funds are designed to mature in a specific calendar year, similar to an individual bond, while still retaining the diversification, transparency and liquidity advantages of ETFs.

What is a target maturity bond ETF?

Target maturity bond ETFs are usually easy to identify because the maturity year is included directly in the fund's name. You will commonly see labels such as 2026, 2027, 2030 or 2040.

Unlike traditional bond ETFs, which hold an evergreen portfolio spanning many maturities, target maturity bond ETFs hold bonds designed to mature in the same calendar year. That structure makes them behave more similarly to an individual bond ladder.

When you buy one of these, you still receive the standard benefits of a bond ETF. The fund pays periodic monthly distributions rather than semi-annual coupon payments, and the ETF itself trades throughout the day with a net asset value (NAV) that fluctuates based on the value of the underlying bonds.

The key difference appears as the ETF approaches its maturity year. Instead of continuously replacing bonds to maintain a constant duration profile, the portfolio gradually winds down. The bonds mature, proceeds shift into cash and cash equivalents, and eventually the ETF itself liquidates.

From there, investors receive a final distribution based on the fund's NAV after liabilities. This process is designed to mimic the principal repayment of an individual bond at maturity. For example, according to BlackRock and its iShares iBonds lineup, an investor's total return (represented by yield to maturity) comes from two components:

1. Periodic monthly income distributions; and
2. The final end-date distribution upon ETF's termination.

These two components interact with each other. All else equal, if the ETF distributes more income along the way, the final payout tends to be smaller. Conversely, if periodic distributions are lower, more value remains for the end-date distribution.

For iShares specifically, most iBonds ETFs terminate toward the end of the designated maturity year, typically around October through December. Once the underlying bonds mature and the portfolio transitions to cash, the ETF is liquidated and shareholders receive the remaining NAV.

Importantly, target maturity ETFs can still vary substantially depending on the underlying bonds they hold. Most providers offer lineups for U.S. Treasuries and investment-grade corporate bonds, but some also offer high-yield bonds, municipal bonds and Treasury Inflation-Protected Securities (TIPS).

These categories differ in terms of credit quality, yield and volatility, allowing investors to tailor a bond ladder around their own risk tolerance. Even so, target maturity bond ETFs are still exposed to duration risk. A fund maturing in 2040, for example, will have a higher duration than one maturing in 2027.

That means changes in interest rates can still significantly impact the ETF's price before maturity. Falling rates can boost prices, while rising rates can hurt them. Matching the ETF's maturity profile to your actual time horizon for income needs remains important.

Finally, unlike owning an individual bond directly, you will pay an ongoing expense ratio. This annual fee is deducted from the fund's returns and directly reduces yield and total return over time.

For example, a target maturity ETF charging a 0.50% expense ratio would create roughly $50 in annual fee drag on a $10,000 investment. Since the 30-day SEC yield is quoted after expenses, keeping fees low is especially important for income-focused investors.

How we picked the best target maturity bond ETFs

Bond ladders are composed of multiple bonds with staggered maturities. The same principle applies when building one with target maturity bond ETFs. Because investors will typically need several ETFs rather than just one, it was not really practical to crown a single "best" ETF in this category.

In many cases, the primary distinguishing feature between funds is simply the maturity year itself. Instead, we chose to profile four of the largest providers in the space and focus on the part of each lineup that stood out the most.

1. For iShares, we focused on the iBonds Treasury target maturity bond ETFs.
2. For Invesco, we focused on its BulletShares high-yield target maturity bond ETFs.
3. For State Street, we focused on its MyIncome municipal bond target maturity ETFs.
4. For Vanguard, we focused on its investment-grade corporate bond target maturity ETFs.

For every ETF discussed, we also highlighted key metrics such as the 30-day SEC yield, expense ratio, assets under management and liquidity. For each provider, we also selected a group of ETFs that could hypothetically be combined into a three-year bond ladder suitable for an investor starting today.

Remember, this is simply an illustrative example designed to demonstrate how these ladders can be structured in practice. Actual portfolio construction will vary depending on an investor's time horizon, risk tolerance, income needs and interest rate outlook.

One advantage of this category is that many providers now offer dedicated ladder-building tools. For example, iShares offers an iBonds ladder calculator that helps investors estimate metrics such as weighted average yield to maturity and acquisition yield, while also showing how factors like premium or discount pricing and expense ratios affect expected returns.

iShares iBonds Treasury ETF Ladder

• iShares iBonds Dec 2027 Term Treasury ETF (IBTH)
• iShares iBonds Dec 2028 Term Treasury ETF (IBTI)
• iShares iBonds Dec 2029 Term Treasury ETF (IBTJ)

The Treasury component of the iShares iBonds lineup is notable for its low costs and strong liquidity. All three ETFs charge a 0.07% expense ratio, or $7 per year for every $10,000 invested, and each currently trades with a relatively tight 30-day median bid-ask spread of roughly 0.04% to 0.05%.

The funds are also well capitalized. IBTH currently holds $2.2 billion in assets under management, IBTI about $1.8 billion, and IBTJ roughly $1.3 billion. That scale materially reduces concerns around premature closure due to lack of investor interest. In terms of income, as of June 23, IBTH offered a 3.8% 30-day SEC yield, IBTI 4.0%, and IBTJ 4.0%.

U.S. Treasury securities held by these ETFs remain among the safest fixed-income instruments globally. While U.S. government debt has been downgraded from AAA to AA by some ratings agencies, Treasuries are still generally treated as effectively risk-free in practice from a default perspective.

Treasury interest also receives favorable tax treatment. Income from Treasuries is generally exempt from state and local taxes, whereas corporate bond income is typically taxed as ordinary income at both the federal and state level.

Learn more about IBTH, IBTI and IBTJ at the iShares iBonds provider site.

Invesco BulletShares High-Yield ETF Ladder

• Invesco BulletShares 2027 High Yield Corporate Bond ETF (BSJR)
• Invesco BulletShares 2028 High Yield Corporate Bond ETF (BSJS)
• Invesco BulletShares 2029 High Yield Corporate Bond ETF (BSJT)

High-yield corporate bonds, also known as junk bonds or non-investment-grade bonds, are bonds carrying ratings below BBB. Credit ratings are assessed by the three major agencies: S&P Global, Moody's and Fitch Ratings. Within the high-yield market, the highest-rated segment starts at BB, followed by single-B and then CCC or CC-rated securities lower down the spectrum.

These bonds carry materially higher credit risk than investment-grade debt. There is a greater possibility that issuers may fail to make coupon payments or repay principal at maturity. One way to measure this risk is through cumulative default rates.

According to S&P Global, BBB-rated bonds, the lowest rung of investment grade, historically showed a three-year cumulative default rate of just 0.91%. Move down to BB-rated bonds and that figure rises to 4.17%. For single-B bonds, it climbs further to 12.41%. At the CCC/CC level, the three-year cumulative default rate reaches 35.67%.

Investors are compensated for accepting that higher risk through materially higher yields. Currently, the Invesco BulletShares lineup offers sizable 30-day SEC yields: BSJR at 5.6%, BSJS at 5.7%, and BSJT at 6.5%. The longer maturities generally contribute to the higher yields in the later-dated funds.

Investors using the BulletShares high-yield lineup should also pay attention to fees and taxes. These ETFs charge a 0.42% expense ratio, which is reasonable for riskier credit exposure, but notably higher than Treasury or investment-grade target maturity ETFs.

Tax efficiency is another consideration. Because these ETFs hold corporate bonds, distributions are generally taxed as ordinary income at both the federal and state levels. For investors in higher tax brackets, particularly in states such as California and New York, this can materially reduce after-tax yield.

Liquidity is also worth monitoring. Under normal market conditions, these ETFs trade efficiently, but during periods of stress, high-yield corporate bonds can become materially less liquid than Treasuries. Investors should expect wider bid-ask spreads during periods of market turmoil.

Learn more about BSJR, BSJS, and BSJT at the Invesco BulletShares provider site.

State Street MyIncome Municipal ETF Ladder

• SPDR My2027 Municipal Bond ETF (MYMG)
• SPDR My2028 Municipal Bond ETF (MYMH)
• SPDR My2029 Municipal Bond ETF (MYMI)

For some investors, particularly those in higher tax brackets, tax efficiency can matter more than headline yield. Investment-grade corporate bonds are generally the least tax-efficient option discussed so far because their distributions are taxed as ordinary income at both the federal and state levels. Treasury bonds offer some improvement because interest is typically exempt from state and local taxes.

If your goal is avoiding federal income taxes while building a bond ladder, municipal bond ETFs may be more appealing. One option is the State Street MyIncome municipal bond lineup. A simple three-year ladder could be built by allocating evenly across MYMG, MYMH and MYMI.

These ETFs charge a 0.20% expense ratio, placing them roughly midway between the lower-cost iShares Treasury iBonds lineup and the more expensive Invesco BulletShares high-yield ETFs. Liquidity remains reasonable, as all three ETFs currently trade with 30-day median bid-ask spreads of 0.08%.

The funds are relatively new and currently modest in size, with MYMG and MYMH each holding just under $10 million in assets under management, while MYMI sits closer to $14 million. Despite the lower AUM, the risk of liquidation appears limited given State Street's scale, distribution network and brand recognition, which should support future inflows.

Headline 30-day SEC yields currently stand near 3% for all three target maturity bond ETFs. On the surface, those yields may appear lower than taxable Treasury or corporate bond ETFs, but municipal bond investors should instead focus on the tax-equivalent yield.

The tax-equivalent yield estimates the yield a taxable bond ETF would need to generate to match the already tax-free income from a municipal bond ETF. Using the highest marginal federal tax bracket, State Street estimates tax-equivalent yields of 4.8% for MYMG, 4.8% for MYMH, and 4.9% for MYMI.

Learn more about MYMG, MYMH and MYMI at the State Street MyIncome provider site.

Vanguard Target Maturity Corporate ETF Ladder

• Vanguard Target Maturity 2027 Corporate Bond ETF (VBCA)
• Vanguard Target Maturity 2028 Corporate Bond ETF (VBCB)
• Vanguard Target Maturity 2029 Corporate Bond ETF (VBCC)

Vanguard is one of the newest entrants to the target maturity bond ETF space, and so far, its lineup has focused exclusively on investment-grade corporate bonds. These are loans issued by companies rated at least BBB by the major credit agencies.

In practice, however, Vanguard's portfolios also carry substantial allocations to higher-quality A-rated debt, along with smaller allocations to AA and even some AAA-rated securities. Notably, only two U.S. companies currently maintain AAA credit ratings: Microsoft (MSFT) and Johnson & Johnson (JNJ).

In terms of yield, Vanguard's target maturity corporate bond ETFs generally sit between Treasuries and high-yield bonds of similar maturity. Currently, VBCA offers a 4.2% 30-day SEC yield, VBCB yields 4.4%, and VBCC yields 4.6%. The increase in yield across the ladder reflects the additional maturity risk investors take on with the later-dated ETFs.

This segment tends to sit in a "Goldilocks zone" for many investors. Compared to Treasuries, investment-grade corporate bonds provide meaningfully higher income. Compared to high-yield bonds, they carry materially lower default risk. That combination makes them more of a balanced, jack-of-all-trades option for ladder construction.

The trade-off is tax efficiency. Like other corporate bond funds, distributions are generally taxed as ordinary income at both the federal and state levels. While the yields are lower than high-yield bonds, taxation can still meaningfully reduce after-tax income in taxable accounts.

In classic Vanguard fashion, however, the lineup remains very inexpensive. All three ETFs charge a 0.08% expense ratio.

Learn more about VBCA, VBCB and VBCC at the Vanguard Target Maturity provider site.

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Many bond strategists are cautious about high-yield debt these days. It's fully valued, they say, relative to other pockets of the fixed-income market. But the Pimco 0-5 Year High Yield Corporate Bond ETF (HYS) has been a standout among exchange-traded bond funds in the Kiplinger ETF 20 in recent months.

HYS has held up well since the start of the year, and its 8.8% return over the past 12 months outpaced 59% of its high-yield bond fund peers, as well as the Bloomberg U.S. Aggregate Bond Index. (All returns are through April 30.)

The ETF's tilt toward short-term debt and its robust 6.4% yield helped. Pimco 0-5 Year High Yield boasts a short, two-year duration (a measure of interest rate sensitivity). That has been a plus in recent months as rates have inched up amid a multitude of worries, including the war in Iran and persistent inflation, says comanager David Forgash.

Bond prices and interest rates move in opposite directions; a two-year duration implies that if interest rates rise by one percentage point, the ETF's net asset value will fall by 2%. Sizable exposure to the energy sector, one of the top-performing junk sectors over the past year, has also been a boon.

HYS fund managers have a smart investing strategy

This Pimco ETF is technically an index fund, but its four comanagers combine proprietary quantitative models and the firm's big-picture views to actively select sectors and bonds for the portfolio to outperform the benchmark.

"It's about getting ahead of the market," says Forgash, adding they also "dig in deep," researching the securities they invest in to "avoid potential blowups."

Recently, the managers have been buying selectively in battered industries, including software, which cratered amid artificial-intelligence disruption worries, and building materials, which declined as rising construction costs and affordability concerns weighed on investor confidence in the sector earlier this year.

Over longer hauls, this short-term high-yield fund outpaces its peers. Its five-year return, 5.1% annualized, beat 92% of its competition.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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April and Tax Day have a way of sharpening investors' attention. Even for those who planned ahead, writing a check to the IRS can prompt a familiar question: Is there a better way to manage taxes on my investments going forward?

To me, it's often the moment when investors stop looking backward at last year's returns and start asking harder questions about how their portfolios are positioned for the years ahead.

In recent years, higher short-term yields have drawn attention toward cashlike instruments and ultra-short strategies.

But a closer look at today's municipal bond market, particularly through diversified municipal bond funds and ETFs that span the yield curve, suggests that investors are overlooking a compelling part of the landscape.

Many of the same forces I wrote about late last year are still very much in place — and in some respects, they've become even more pronounced.

A steeper curve creates opportunity

One of the defining features of the current municipal bond market is the steepness of the yield curve. In simple terms, investors are being paid meaningfully more to extend maturity.

From where I sit, that steepness is one of the clearest signals in the market today, and one that long-term investors shouldn't ignore.

High-quality municipal bond strategies with longer durations are offering yields that stand out not just on a tax-adjusted basis, but in absolute terms as well.

For investors who are willing and able to look beyond the front end of the curve, that shape can translate into higher income and potentially more resilience over time.

This is especially relevant in a higher-rate environment, where tax-exempt income can play a more meaningful role in overall portfolio construction.

'Cheap' by historical standards

Beyond the shape of the curve, overall valuations also matter. By many measures, longer-dated municipal bonds appear inexpensive relative to history. Relative value ebbs and flows in every market, but it's unusual to see long municipals offering this combination of yield and relative value at the same time.

Municipal bond performance lagged behind other fixed income markets over 2025, leaving yields elevated compared with similar taxable bonds. For investors focused on after-tax outcomes, that disconnect is worth paying attention to.

Part of that value reflects how municipal bonds stack up against taxable alternatives. Longer-dated municipal yields look especially attractive relative to comparable Treasury yields, standing out vs historical norms in a way that the front end of the market does not.

Combined with the steepness of today's municipal yield curve, that relative value means investors are being paid more with additional time, with income and after-tax outcomes that can improve over time as longer‑dated exposures roll down the curve.

The behavioral gap

Despite these attributes, many investors continue to cluster at the short end of the market. That's understandable. Higher front-end yields are visible and comforting, especially after years of rising rates.

But it's also a pattern I've seen before, and it often leaves investors underexposed when the rate environment eventually shifts.

History suggests that herding into short-duration strategies can carry its own risks. Already, longer-term municipal bonds offer higher levels of income than those on the shorter end while still providing a potential hedge against equity declines due to an economic slowdown.

When economic growth expectations shift lower, longer-dated bonds often respond more positively. In those environments, longer-duration municipal bonds can benefit from both income and price appreciation, while also maintaining their tax-advantaged status.

In other words, today's caution may be tomorrow's missed opportunity.

Taxes, time and total return

One of the less appreciated aspects of municipal bonds is that they can aid in tax planning. For clients with appropriate investment timeframes, longer-term municipal bonds can enable strategies that lower future tax bills year after year.

That doesn't mean municipal bonds are a one-size-fits-all solution, or that duration risk should be ignored. But for investors thinking beyond this year's taxes and toward longer-term outcomes, municipals can play a valuable role alongside other fixed-income exposures.

It's also worth noting that access to the municipal bond market has evolved. While individual bonds remain an option, today's investors benefit from a wider range of diversified mutual funds and ETFs, which make it easier to gain broad exposure across the curve.

Regardless of the vehicle, the underlying story is the same: Today's municipal bond market offers a combination of yield, tax efficiency and relative value that deserves a fresh look.

The takeaway

April tends to focus attention on what's already happened with taxes, but in my experience, it's also one of the few moments when investors are open to rethinking what comes next.

For investors willing to move past the front end of the curve, municipal bonds today can look steep, relatively cheap and — importantly — well structured to help investors keep more of what they earn.

Related Content

• This Overlooked Diversification Tool Can Build Resilience Into Your Portfolio
• Here's Why Munis Aren't Just for Wealthy Investors Now
• Such Attractive Yields in High-Grade Munis Are Rare and May Not Last Long
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• Remembering Bogle: A New Standard for Municipal Investing

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

It's true what people say: If you want the most reward, you have to take the most risk. But prudent investing is about taking calculated risks, not blind ones. And after three consecutive years of hardy stock returns, it may be time to dial down the risk in your portfolio, in preparation for the eventuality of a market stumble.

Or your circumstances in life might dictate a more cautious stance, for whatever reason. De-risking is about planning ahead.

"After the risk has happened, it's too late," says Tim Steffen, director of advanced planning in the wealth management division of investment firm Baird.

In a classic sense, de-risking involves scaling back on stocks and moving into less-volatile instruments, such as bonds and cash.

Some strategists, including Liz Thomas, head of investment strategy at SoFi, don't think market conditions warrant that right now, and you might agree. Similarly, thirty-something investors, who don't need to tap their retirement savings for decades, and investors who are already conservatively positioned may not need to de-risk.

In those cases, staying the course may be the better tack — and actually avoids the risk of not meeting your goals by investing too conservatively for long-term success.

But other situations present good opportunities to shore up your portfolio by making appropriate tweaks.

We'll review some de-risking strategies for several circumstances, including temporary hurdles (your job is in jeopardy or you're nearing retirement), more lasting ones (such as a change in your comfort level with risk), and other situations.

The first steps to de-risk your portfolio

Consider some best practices in your quest for a safer portfolio. It's important to remember that de-risking doesn't mean upending your current investment plan or selling everything and moving to cash. Rather, it's about finding ways to tame the risk in your portfolio without dramatically shifting the allocation of your investments.

In some cases, no selling may be required; you simply invest any new money you're putting in the market "a little differently," says Baird's Steffen.

Start with a review of your portfolio. You should have an investment plan already in place — one centered on a diversified portfolio that holds a mix of foreign and U.S. stocks, bonds, and cash and that is aligned with your time horizon and your risk tolerance.

These days, after three good stock-market years, your portfolio might be more aggressively positioned than you'd prefer. A simple rebalancing — selling securities that have done well and buying pockets of the market that have underperformed — could be enough to lower the risk level of your portfolio. And "now is a good time to lock in some gains," says Baird's Steffen.

Next, identify any life changes or worries that may be keeping you up at night. If your cash needs, investment goals, risk tolerance or time horizon have become more challenging, some de-risking might be in order.

"Scale any shifts you make in your portfolio to the scale of the risk involved," says David Kressner, a managing adviser at Altfest Personal Wealth Management in New York City.

Finally, you may want to assess how any portfolio tweaks you're considering may affect your chances of achieving your investment goals. That’s what Cassandra Rupp, a senior wealth adviser at Vanguard, does before making any moves in her clients' portfolios.

Rupp stress tests the new portfolio in a Monte Carlo simulation, which runs through hundreds of possible market scenarios to find out how it might perform and, most importantly, how likely the altered portfolio will be to accomplish the client's investment objective.

"So, it's not just about how we might be revising the investments," says Rupp. "It's also revisiting the success rate of the new long-term plan."

Read on for ways to de-risk your portfolio in five different scenarios, including investments to consider. All returns and data are through May 26, unless noted otherwise.

Scenario 1: You're worried about a stock market bubble.

If a bubble in artificial-intelligence-related stocks concerns you, you're probably overinvested in them, says Baird's Steffen. Of course, these days, most of us are. The AI-stock-heavy tech and communications services sectors combined currently make up nearly half of the S&P 500 Index.

Diversification is the name of the game in this scenario. "Rarely does a bubble affect all things in a uniform type of way," says Kressner. For instance, in the early 2000s, when the dot-com bubble burst, a well-diversified portfolio, with exposure to non-tech sectors, small-company shares and foreign stocks, weathered the downturn well, he says.

Beef up your stakes in non-tech parts of the market with an aim to lower your tech exposure to about 25% of your overall stock portfolio.

"This is a good time to spread your money out," says Lewis Altfest, chief investment officer at Altfest Personal Wealth Management. "Tech stock valuations are kind of rich right now. And I think other parts of the market are going to do better than technology, or at least keep up with it, and with less risk," Altfest says.

Non-tech sectors to consider include healthcare and consumer staples, where investors are currently "underexposed," says SoFi's Thomas.

Our favorite diversified healthcare fund is the Fidelity Select Health Care Portfolio (FSPHX), a member of the Kiplinger 25, the list of our favorite no-load mutual funds. Manager Eddie Yoon has outpaced his competition over the past three, five, 10 and 15 years.

The Vanguard Consumer Staples Index (VCSAX) and its exchange-traded-fund twin that trades under the symbol VDC both charge just 0.09% in annual expenses and boast five-and 10-year annualized records that rank among the top decile of consumer staples funds.

Alternatively, an equal-weighted index fund, such as the Invesco S&P 500 Equal Weight ETF (RSP), can lessen overconcentration in huge tech stocks because it holds every stock in the S&P 500 in equal proportion.

Or buy funds that focus on midsize and small-cap stocks. Small caps will benefit from continued interest rate cuts; mid-cap stocks are ripe pickings for all those mergers and acquisitions deals that many expect to pick up in pace this year.

The iShares Core S&P Mid-Cap ETF (IJH) and the iShares Core S&P Small-Cap ETF (IJR) are members of the Kiplinger ETF 20, the list of our favorite exchange-traded funds, as is the aforementioned Invesco S&P 500 Equal Weight fund.

Tilting toward large-company value strategies is another way to diversify. You'd be surprised to learn, however, that many large-value funds count Nvidia (NVDA), Apple (AAPL) and Microsoft (MSFT) among their top holdings. Two that don't: Vanguard Equity Income (VEIPX) and Dodge & Cox Stock (DODGX). Both funds are members of the Kiplinger 25.

Index-fund lovers might consider Vanguard Value Index (VVIAX), which also trades as an ETF under the symbol VTV.

Explore abroad. Despite a solid performance in 2025, foreign stocks still trade at bargain prices relative to U.S. shares on multiple measures.

The Vanguard Total International Stock ETF (VXUS) tracks an index that includes nearly every publicly traded foreign stock in developed and emerging countries. The fund has climbed 33% over the past 12 months.

Altfest favors international value-oriented stock strategies these days. One such fund that catches our eye: the iShares Edge MSCI International Value Factor ETF (IVLU), which tracks an index of foreign large and midsize companies that trade at low valuations. Over the past 12 months, the fund has gained 38%. Its 10-year annualized return, 11%, isn't shabby, either. Both trailing returns outpace the MSCI EAFE Index of stocks in foreign developed countries.

Scenario 2: Your job is insecure.

Layoff fears are high these days, according to a recent survey by Zety, a website that helps job seekers write résumés and cover letters. But if you're laid off, unless you’re close to retirement age, you'll likely find work again.

So the best de-risking strategy — before the pink slip arrives — is to leave your portfolio allocation alone but focus on having enough cash to cover your costs while you're looking for new employment.

Build an emergency fund that covers at least three to six months of essential expenses — rent or mortgage, car payments, gas, food, healthcare costs, insurance and utilities. Planning for enough to cover just the basics, of course, means fewer dinners out and other such treats while you're looking for a new job.

If denying those pleasures is a downer to you, then you may need to pad your emergency fund more, says Jonathan Lee, a wealth management adviser at U.S. Bank. And bear in mind, depending on your work experience, income level and how niche-y your skill set is, it may take you longer to find a job than someone in the early stages of their career.

In that case, a six-month emergency fund makes more sense than one that covers just three months.

You should consider family-income dynamics when you're deciding how much to save in your emergency fund, too. If you're single or your family pulls in two fairly equal salaries, then a three-month fund may be sufficient. But if household income is lopsided or you rely on one income (or you and your partner work at the same place or in the same field), an emergency fund that covers closer to six months is a good goal, says U.S. Bank's Lee.

Finally, factor in psychology. For nervous Nellies, a six-month emergency fund can make sense regardless of job experience or family dynamics. Setting aside cash over a year or even two years is a reasonable goal by balancing saving for your retirement and an emergency fund at the same time.

If you're already out of work and have no emergency fund, you may have to tap other resources, such as a home-equity line of credit, if you have one.

If you must sell investments, tee up assets in a taxable account first, both to avoid an early withdrawal tax penalty if you're younger than 59½ (you can make penalty-free withdrawals of contributions from a Roth account) and to keep your tax-deferred assets growing. Aim to keep your overall allocation in place by selling proportionately across your portfolio so that your long-term investment plan remains unchanged.

Keep your emergency stash in an interest-bearing account that beats inflation (running about 3.8%). "You may not need to rely on it for years, but over the course of time, inflation can seep into your ability to afford your lifestyle as you know it," says Lee.

At last report, top yields for both high-yield savings accounts and money market bank accounts were at or above 4%. Among money market mutual funds, the Vanguard Federal Money Market Fund (VMFXX), the second-largest in the country by assets, offered 3.6%; the biggest money market mutual fund, the Fidelity Government Money Market Fund (SPAXX), paid 3.3%.

Scenario 3: You've entered the retirement danger zone.

The five years before and after you retire, a period known as the retirement danger zone, is a critical time in your investing life. A major market downturn during that stretch could shrink your portfolio just when you need to start pulling from it.

Over time, that can negatively impact your ability to outlast your nest egg. "It's called the sequence-of-returns risk," says U.S. Bank's Lee. We're living longer, too, which adds to the danger.

The best way to protect yourself against a sequence-of-returns risk is to make sure you've got enough cash on hand to cover two to three years' worth of expenses in retirement, after accounting for income from other sources, such as Social Security or a pension.

Consider putting aside enough for necessary expenses, as well as fun money, says Lee. Extremely risk-averse investors might consider holding up to five years of expenses, but three years is a good middle ground. The goal is to buy enough time to ride out a tough market, should one come along, so you aren't forced to sell investments in a down market.

Ready cash means money that's easily accessible in a high-yield savings account, money market bank account or a money market mutual fund, all of which yield roughly 3.0% to 4.0%, nationwide, at last report.

You can use this Bankrate tool to find and compare savings options fast:

Investors in the retirement danger zone should consider de-risking the medium-term portion of their investment portfolio, too. In a "bucket" approach to retirement-portfolio construction, that means holding the bucket of money you expect to tap roughly four to 10 years from now in a combination of cash and high-quality bonds and bond funds.

Our favorite actively managed intermediate-term bond funds include Baird Aggregate Bond (BAGSX), which currently yields 3.9%; Fidelity Investment Grade Bond (FBNDX), which yields 4.0%; and the Vanguard Core Bond ETF (VCRB), 4.7%.

An intermediate-term government fund we like is Vanguard Intermediate Term Treasury (VFITX), which is actively managed and yields 4.0%.

For now, short-term bond funds still offer good yields. Consider these stand-out short-term bond funds: iShares Short Duration Bond Active (NEAR), which yields 4.3% — it's a member of the Kip ETF 20 — and Vanguard Short-Term Federal (VSGBX), which currently yields 3.5%.

Lee says a small stock allocation in the medium-term bucket is not out of order, as long as the stocks are high-quality, well-established, large-cap stocks from the U.S. or developed foreign countries. "These stocks will grow over time, but they aren't all the way out on the risk spectrum," he says.

To add high-quality companies to your portfolio, take a look at these two funds. The Pacer US Cash Cows 100 ETF (COWZ) focuses on large companies with the highest free-cash-flow yield. That's free cash flow (money left over after operating expenses and spending to maintain or upgrade property and equipment) relative to a company's market value.

The fund has returned 10.5% annualized over the past five years. Notably, it gained 0.2% in 2022, a year when the S&P 500 lost 18.1%. The JPMorgan U.S. Quality Factor ETF (JQUA) turned in a solid 13.8% five-year annualized return with below-average volatility. It tracks an index that sifts for companies that meet 10 quality-oriented criteria, including measures of profitability, financial risk and earnings quality.

For exposure to high-quality foreign stocks, consider the Invesco S&P International Developed Quality ETF (IDHQ), an index fund that homes in on three fundamental ratios: return on equity (a profitability measure), accruals ratio (an earnings-quality measure) and financial-leverage ratio (a measure of financial stability and solvency). Or consider a foreign dividend-stock fund — such funds tend to offer smoother rides.

Kiplinger 25 member Janus Henderson Global Equity Income (HFQTX) sports below-average volatility and has generated a robust 6.4% yield over the past 12 months.

Ideally, you'd be making de-risking moves in a tax-sheltered account, says Christine Benz, director of financial planning and retirement at Morningstar.

"But if you're still working and contributing to those retirement accounts, think about channeling your new contributions to those safer holdings as a way to move up your allocation there," she says.

Scenario 4: Your risk tolerance is lower than you think.

It happens: You thought you could withstand a bear-market drop in your portfolio, but now you're not comfortable with it. The early 2025 tariff tantrum, when the S&P 500 dropped 19% in less than seven weeks, was a wake-up call for many investors.

If your ability to withstand stock market losses has changed, there are ways to maintain exposure to equities but pare down the volatility, or even limit potential losses — you just may have to give up some potential gains.

Defensive sectors, such as consumer staples and utility stocks, tend to be steady Eddies, in part because many sport robust dividends that can cushion any losses (or shore up slim returns).

Over the past decade, for instance, shares in companies that sell essential daily household products have been nearly 20% less volatile than the broad market. The aforementioned Vanguard Consumer Staples ETF (VDC) ranks among the top 8% of all consumer staples funds over the past three years. Utilities, meanwhile, are a classic defensive play. Consider the Invesco S&P 500 Equal Weight Utilities ETF (RSPU).

Focusing on more stable stocks may be a good move this year, says SoFi's Thomas, because it's a midterm election year, and those tend to be more volatile.

A buffered ETF uses options tied to a specific index to cushion losses to a predetermined degree in exchange for a cap on potential gains.

Buffered ETFs require some timing when you buy, because the options are set to cover a specific stretch — 12 months, for example — so optimally, you'll get in at the start of the period. Once purchased, however, they can be held indefinitely, because they roll over to a new 12-month stretch.

Buy shares in the Innovator U.S. Equity Power Buffer ETF July Series (PJUL) in late June, for instance. It protects you against the first 15% in losses in the S&P 500 between the start of July 2026 and the end of June 2027.

The cap on gains changes from one-year period to one-year period and had not been set yet at press time. The fund's cap on gains over the past 12-month period that ended in April 2026 was 13.1%, net of fees.

These funds come in many iterations. Some are tied to the performance of other indexes, including the Nasdaq Composite, as well as benchmarks for small-company stocks, emerging and developed foreign stocks, and even bonds. The reset period, also known as the outcome period, varies, too. Some buffered funds reset over three months, six months or two years, for example.

The Innovator Defined Wealth Shield ETF (BALT) offers protection against a 20% drop in the S&P 500 every three months. In its most recent quarterly stretch, which ended in March, the fund’s three-month cap on gains was 2.1% (which implies an annualized cap of more than 8% over 12 months). With its hefty buffer on losses, this fund tends to behave more like a bond investment.

Scenario 5: You fear a recession ahead.

Most economists expect slower growth but no recession in 2026. But just the fear of a recession can affect the stock market, whether one actually occurs or not, says Jim Paulsen, a former Wall Street strategist who writes the newsletter Paulsen Perspectives.

In turn, a calamity in the market could dent what’s known as the "wealth effect," causing investors to cut back on spending and delivering a blow to the economy.

Diversification is your first line of defense in a recession. Make sure your investments are appropriately spread across sectors, company size, geography and even investment style (value and growth).

A Wells Fargo Investment Institute study shows that a portfolio with a wide mix of investments outperformed the S&P 500 by an average of seven percentage points over the past several recessions.

Retune your portfolio so it's more defensive. A defensive portfolio — one that's always positioned for an economic downturn — can allow you to maintain an appropriate mix of stocks, bonds and cash, but tilting toward more conservative selections within those asset classes may provide a smoother ride, which can help investors stay the course, says Frank Maltais, a certified financial planner at Fidelity in Portland, Maine.

On the stock side, load up on high-quality names that are less economically sensitive, are low in volatility and pay dividends. In addition to funds we've already named, such as Fidelity Select Health Care, Vanguard Equity Income, Invesco S&P 500 Equal Weight Utilities and Vanguard Equity Income, we also like Capital Group Dividend Value (CGDV), which invests in stocks of established U.S. firms that generate above-average dividend yield (greater than the S&P 500).

Over the past three years, it has returned 25.4% annualized, beating 99% of its peers (large-value funds), with volatility that was a touch below average.

Go high-quality on the bond side, too, and hold short-and intermediate-term Treasuries, which offer ballast in stock-market downturns, as well as government-guaranteed mortgage bonds. You can buy Treasuries directly from the government at Treasury Direct.gov and hold to maturity.

Among funds, the iShares U.S. Treasury Bond ETF (GOVT) holds debt with short-, medium-and long-term maturities and yields 4.3%. More than 55% of the portfolio is invested in bonds that mature in one to five years. Target the short end of the yield curve with the iShares 1-3Year Treasury Bond ETF (SHY), which yields 3.9%.

If you want to tilt more toward medium-maturity debt, Vanguard Intermediate-Term Treasury (VFITX) holds a mix of bonds that mature in three to seven years. Our favorite mortgage-bond funds include the index-based Vanguard Mortgage-Backed Securities ETF (VMBS), which yields 4.1%, and the actively managed fund Vanguard GNMA (VFIIX), which yields 3.7%.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Shakespeare's "neither a borrower nor a lender be" is good advice for maintaining harmony with friends and family. But if everyone followed it, investors would lose out on an entire asset class: Bonds.

Bonds allow individual investors to be lenders. Companies or governments, which issue the bonds, are the borrowers. The money generated from bond sales pays for roads, airports, factories and the start-up costs for all manner of innovative products. Bonds also happen to benefit your portfolio. Referred to more formally as fixed income, they are an essential part of a balanced stable of investments.

Bonds are less volatile than stocks, and they're far less likely than stocks to go to zero. They typically — but don't always — trend in a different direction from the stock market, providing balance in your portfolio. And they provide income that non-dividend-paying stocks do not.

They're not as simple as that, though. From issuance to maturity, a number of things can impact a bond's return, and it helps to be familiar with those dynamics, whether you plan on buying bonds yourself or getting your exposure through a mutual or exchange-traded fund.

First things first: When interest rates fall, bond prices rise. And when rates rise, bond prices fall. It's all about demand. When new bonds are issued at lower yields, they're less attractive to investors than higher-yielding bonds already on the market, so existing bonds that pay more interest get bought — and vice versa.

Investors can get cranky when rates rise and they see their bond holdings fall in value (this is supposed to be the safe part of their portfolio, after all), but regularly replenishing a portfolio with new, higher-yielding bonds will eventually cushion those losses, and then some. In this way, "bond prices are self-healing," says Collin Martin, the head of fixed-income research and strategy at the Schwab Center for Financial Research.

The ins and outs of bonds

A key difference between stocks and bonds is that while stocks are perpetual — for the most part, you can buy and hold them forever — bonds mature. That means the borrower pays back your principal and your ownership ends. To maintain your portfolio, you need to buy a new bond.

In many cases the bond has a set term, such as 10 years. If you hold the bond to the end, you get the payment you expected. The interest rate the bond pays is called the coupon, and many bonds pay a fixed rate. Other bonds have rates that vary, pegging payments to a widely used benchmark such as the United States federal funds rate.

The longer the term of the bond, the more sensitive its price is to interest rate moves. The measurement of a bond's sensitivity to interest rate moves is called duration. The number is an estimate, typically expressed in years, of how long it will take a bond investor to get paid back.

A longer duration means the bond's price will move more when interest rates move. A duration of 6, for example, implies that if interest rates rise by one percentage point, the price of a bond will fall roughly 6%; the price will rise by a like amount if rates fall one point.

Things get a little more complicated when the issuer of the bond has the right to pay it off early, or "call" the bond. The issuer might have just one date when it can call, or it might have multiple chances. Typically, the issuer pays the bondholders a penalty (a "call premium") for calling the bond before it reaches maturity.

This creates "call risk" — which you'll find most often in a declining-rate environment when borrowers want to retire bonds paying a higher rate of interest and replace them with cheaper debt.

Everything that happens to a bond along its life cycle impacts its yield, or the return relative to the price of the bond. Consequently, there is a lexicon of yields to get to know:

Current yield is the bond's annual interest payments as a percentage of the bond’s current price. If a bond’s price drops below its issue price, the current yield increases. If the bond is trading above its issue price, the current yield is lower than the coupon rate when you bought the bond.

Yield to maturity is the return an investor will get by holding the bond to maturity, as long as the borrower makes all the promised payments and the investor is able to reinvest those payments at the same rate of return.

Yield to call calculates the return for the investor if the company calls the bond on a specific date before maturity. A bond that allows the issuer multiple opportunities to call it has multiple yield-to-call returns.

Yield to worst sounds yucky, and it is. If there are multiple call dates, yield to worst is the yield attached to the call date that gives investors the worst possible return.

So far, everything we've talked about assumes the borrower pays you back. If it's the United States government that issued your bond, that's safe to assume. But if you're buying corporate bonds — issued by companies — there's a risk that you won't get your money back at all. That's called credit risk. As an investor, you're paid for taking that risk by the difference in interest between what's considered the risk-free rate on a U.S. Treasury note or bond and the rate paid by your bond.

Ratings agencies that evaluate bonds, borrowings and debt assign grades to them — and the riskiest bonds are considered non-investment grade, or high-yield bonds (for their premium yields). Colloquially, they're called junk bonds, and they are rated below triple-B by Standard & Poor's. As interest rates tumbled after COVID-19, so too did defaults on high-yield bonds, according to S&P. But defaults on high-yield bonds have returned to more normal levels of roughly 4.5%.

"The default risks are not negligible, so that puts a fair bit of onus on you as an investor to be gauging exactly what’s happening with the company," says Robin Marshall, director of fixed-income research at FTSE Russell, an index and analytics company.

All of this is a lot to keep track of. For many investors, funds that hold bonds may be a better choice than individual bonds themselves. Funds typically disclose the average duration of the bonds in their portfolio — meaning an investor can see which funds are most sensitive to interest rate moves — and also give an idea of the credit quality of their portfolio by disclosing the percentages of bonds in each ratings category.

Baird Aggregate Bond (BAGSX), a member of the Kiplinger 25, the list of our favorite no-load, actively managed funds, is a good investment-grade, intermediate-maturity fund with a duration of 6 years. Its expense ratio is 0.55%, and it yields 3.9%. Vanguard High-Yield Corporate (VWEHX), another Kip 25 fund, has traditionally taken a more conservative approach to the junk-bond market than its peers. With expenses of 0.22% a year, it yields 5.6%.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Continued diversification within the green and sustainable-labelled debt market is broadening the climate investment landscape for fixed income investors, leading to attractive investment opportunities.

Also, vanilla bonds from issuers with strong climate credentials provide an additional pool of impactful investment beyond labels.

As these markets continue to develop, they create new pathways for real-world decarbonisation while widening the investment universe for those seeking meaningful environmental impact.

Dissipating 'greeniums' and competitive performance

We believe the steady issuance of green bonds has resulted in limited trade-offs for fixed income investors when opting for green bonds over their vanilla counterparts.

According to Bloomberg New Energy Finance (BNEF), so-called greeniums — the additional new issue premium attributed to a bond's green label — are dissipating on a global average basis.

For instance, in the case of assessing sovereign twin bonds (a financial instrument where a government issues a green bond alongside a conventional (non-green) bond that has identical financial terms), greeniums have reached record lows, with premiums steadily compressing over time and displaying reduced volatility. This is according to the Anthropocene Fixed Income Institute (AFII).

In addition, sustainable bonds compare favourably to conventional fixed income bonds, with the Bloomberg Global Aggregate Green Social Sustainability Bond index outperforming the Global Aggregate index in 2025, according to Bloomberg Intelligence.

Why green bonds are still attractive

Green bonds remain the label of choice in the sustainable debt market to finance environmental projects and assets, representing close to 40% of transition finance globally, according to BNEF.

The green bond market has grown to more than $3 trillion in total outstanding market value as of January 2026, according to Environmental Finance, with 2025 green bond issuance surpassing 2024 issuance as referenced in Bloomberg Intelligence. Notable drivers include differentiation in terms of issuer type and geography.

Sovereign, supranational and agency (SSA) issuers and securitisations have significantly driven 2025 issuance, jointly accounting for almost 40% of green bond volumes in 2025, according to Bloomberg Intelligence.

These volumes and more diversified bond maturities from SSAs, alongside some new issuers, are helping broaden the opportunity set for multi-sector investors to finance climate-related and environmental projects.

For example, at year end 2025, approximately 70% of sovereign issuers held in the Bloomberg Global Aggregate Index have now issued in green or other sustainable-labelled formats, according to Environmental Finance.

SSAs often play a pivotal role in driving innovation of bond formats and establishing best market practice for other issuers.

For instance, Japan's issuance of Climate Transition Bonds has been reflected by an uptick in Japanese corporations issuing under the transition bond label, with the transition bond market recording strong issuance at the start of 2025.

Across the Asia Pacific region, green and other sustainable bond issuance reached over $320 billion in 2025, according to Bloomberg Intelligence, driven by activity from China. This highlights the broadening universe and potential for global asset managers to invest with a climate lens.

Multilateral development banks are also increasingly focusing their attention on "originate-to-share" models that provide new channels, including via securitisation, to free up more capital and provide credit enhancements and risk mitigation for emerging markets lending.

While not all labels and formats may be appropriate for every product, such innovation is welcome, as it helps expand the investment opportunity set for responsible fixed income investors and allows each investor to focus on those instruments that best align with their specific climate-related objectives.

Climate-focused investment beyond labels

The size of the green bond market, and the associated regional, issuer, sector and maturity coverage of the available universe of securities, allow responsible fixed income investors to construct diversified sustainable portfolios.

This labelled universe can be augmented with vanilla bonds from issuers with robust climate credentials, further enhancing economic diversification for investors and the potential long-term positive environmental impact.

Identifying "dark green" issuers — those representing the highest standards of environmental commitment — can be vital, particularly as some are moving beyond labelled debt.

For example, one multinational energy company is phasing out issuance in sustainability-linked and green bond formats, having integrated robust sustainability commitments into its core business strategy, underscoring the importance of thorough issuer-level analysis to capture opportunities across the wider climate investment landscape.

Final thoughts

The green and sustainable bond market remains a compelling space for investors, offering a blend of attractive investment opportunities, diversification in issuer types and innovative formats.

The expansion of the opportunity set for climate-focused managers to explore investment beyond labels, with a focus on issuers' overall climate strategies and performance, enables the construction of portfolios that are both diversified and impactful from a sustainability perspective.

These drivers consolidate the potential of the green and sustainable bond market for those seeking both financial returns and positive environmental impact.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The market for exchange-traded funds (ETFs) that help build bond ladders is growing. Bond laddering is a popular investing technique that staggers maturities across multiple bonds, or bond ETFs, in order to create a consistent income stream and minimize the impact of interest rate swings.

Now, low-cost fund giant Vanguard has filed paperwork with regulators to launch a line of target-maturity corporate bond ETFs.

They'll go up against iShares' line of iBonds, Invesco's BulletShares and State Street's MyIncome ETFs. Vanguard hopes to launch the funds in early 2026. (Investors should not confuse the firm's target maturity ETFs with its more familiar target-date funds, which are managed to become more conservative over time.)

In a traditional bond fund, a maturing or expiring bond gets replaced with a new one, and the fund lives on. These target-maturity ETFs instead hold a collection of bonds that all mature in the same year. Once the bonds mature, the fund ends and pays out its net asset value to its investors.

Perryne Desai, a Vanguard product manager, says investors can use the ETFs to save for future expenses such as a down payment on a home or college tuition, or use them to construct bond ladders.

The Vanguard filings are for corporate bond funds with maturities from 2027 to 2036. Each will be based on a bond index from ICE, known legally as the Intercontinental Exchange. Holdings are restricted to investment- grade corporates, and constituent weightings are limited for diversification. The funds will liquidate around December 15 of each year.

A lower-cost alternative

Vanguard says it plans to offer the funds with an expense ratio of 0.08%. That's less than the 0.10% charged by iShares and Invesco and the 0.15% charged by State Street, according to fund tracker Morningstar.

Jeff DeMaso, who publishes the Vanguard Investment Adviser newsletter, says the small cost edge that the Vanguard funds deliver may not be enough to persuade investors to switch from the iBonds or BulletShares offerings, but it is something to think about if you're considering setting up a new ladder.

We currently recommend Invesco BulletShares 2026 Corporate Bond (BSCQ), a member of the Kiplinger ETF 20, the list of our favorite exchange-traded funds.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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For decades, bonds have played a familiar role in retirement portfolios. They are meant to reduce volatility, provide income and act as a counterbalance to stocks, especially as investors approach and enter retirement.

But with the Federal Reserve signaling more potential rate cuts ahead, many investors are facing a key decision: How best to allocate the portion of a portfolio traditionally reserved for bonds.

One option worth understanding is the fixed indexed annuity.

The challenge facing traditional fixed income

Today's bond investors are confronting a very different environment than they were just a few years ago. After a period of elevated interest rates, yields on high-quality bonds are attractive compared with much of the past decade.

At the same time, the prospect of future rate cuts suggests that yields may compress, which can weigh on fixed income returns.

This dynamic has raised questions about whether traditional fixed income, by itself, will deliver the combined income, stability and return many retirees expect, especially over the long haul.

It has also prompted financial advisers to consider how other alternatives might complement or enhance the bond portion of a portfolio.

What a fixed indexed annuity does

A fixed indexed annuity (FIA) is an insurance contract designed to provide principal protection while offering the potential for growth tied to a market index, such as the S&P 500 price index.

Unlike direct market investments, FIAs do not participate in market losses. When the linked index posts a loss, the annuity's contract value does not decline because of market performance.

In exchange for this protection, growth is typically limited by caps, participation rates or spreads, and dividends are not included in index calculations. The result is a return profile that is intentionally smoother than equities and can be more competitive than traditional fixed income in certain rate and volatility regimes.

In simple terms, an FIA seeks to do what many investors want bonds to do: Limit downside risk while still providing reasonable upside potential.

What the research says

Academic research supports the idea of diversification beyond traditional stocks and bonds to improve risk-adjusted outcomes.

Pioneering work by Roger Ibbotson, professor of Finance at the Yale School of Management and founder of Ibbotson Associates, has shown that investors are rewarded for exposure to multiple risk premiums and that combining assets with different risk and return characteristics can enhance portfolio outcomes over time.

In research examining long-term market data from 1927 through 2016, Ibbotson and his colleagues found that a simulated FIA tied to a large-cap equity index produced bond-like volatility while delivering a higher annualized return than long-term government bonds, with zero negative rolling three-year periods.

That combination of downside protection and competitive long-term return aligns closely with the role many investors expect bonds to play in retirement portfolios.

Indexed strategies that blend principal protection with participation in equity returns can therefore occupy a middle ground, dampening downside risk while still capturing a portion of market upside.

By combining assets with imperfect correlations, diversified portfolios have historically demonstrated improved risk-adjusted performance, particularly during periods of market stress.

Why timing matters right now

FIAs are sensitive to interest rates in a different way than bonds. Higher interest rates generally allow insurance companies to offer more attractive crediting terms. As rates decline, those terms tend to become less favorable for new contracts.

That means today's environment, before rates potentially move lower, may be an advantageous time to evaluate whether an FIA makes sense for part of a portfolio. Much like locking in attractive bond yields, an FIA allows investors to lock in contract terms that may not be available in the future.

This does not mean abandoning bonds entirely. Instead, it may mean reconsidering whether all of the traditional bond allocation truly needs to be limited to conventional fixed income.

FIAs as a bond complement, not a replacement

FIAs are not designed to replace equities, and they are not suitable for short-term money. They are long-term tools intended for retirement-focused capital. For the right investor, however, FIAs can complement bonds by:

• Reducing portfolio volatility
• Providing downside protection during market declines
• Offering tax-deferred growth
• Helping mitigate sequence-of-returns risk near retirement

When structured properly and matched to an investor's goals and time horizon, FIAs can serve as a stabilizing element in a diversified retirement portfolio, helping to balance growth potential with downside risk control.

The bottom line

FIAs are not one-size-fits-all. Liquidity needs, tax considerations, time horizon and overall portfolio construction all matter.

In an environment where bond yields may compress and rate expectations are evolving, it may be time to revisit old assumptions. A traditional 60/40 portfolio worked well for decades, but the coming years may require a more flexible approach.

For investors nearing retirement who value stability, predictability and protection, fixed indexed annuities deserve thoughtful consideration as part of the broader discussion.

As with any financial strategy, it is important to evaluate how FIAs fit within your overall approach and to work with a qualified financial professional before making investment decisions.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

With more than $4 trillion in assets and growing, the municipal bond market is the main engine of public finance, fueling infrastructure, education and essential services nationwide.

Despite its scale and essentiality, the market remains fragmented and heavily influenced by retail investors, resulting in inefficiencies that present opportunities for active management.

Recent market conditions have led to specific trades that appear to offer questionable value for investors compared to alternative options.

While skilled active managers can strategically position portfolios to take advantage of these market conditions, passive strategies, such as many ETFs and bond ladders, may lack flexibility owing to guideline restrictions and static approaches.

California 1- to 10-year bonds priced too highly vs U.S. Treasuries

Investor demand for tax-exempt municipal bonds from California has been exceptionally strong.

This trend is even more evident for bonds with maturities between one and 10 years, as recent trades show yields are lower by as much as 40 basis points compared to similar bonds from other states (compared to general market AAA-rated municipal bonds with the same maturity).

Much of the demand stems from California's lofty income tax, from which California municipal bonds can provide relief — investors domiciled in the state benefit from state income tax-exemption, in addition to the federal tax-exemption.

At current prices, U.S. Treasury bonds often provide notably higher yields after-tax than 1- to 10- year California municipal bonds (U.S. Treasuries are federally taxable).

This situation is unusual, as investors typically require higher yields from municipal bonds than the after-tax yield on U.S. Treasuries, owing to Treasuries' liquidity and backing by the U.S. government.

The following municipal bond trades illustrate the yield advantage for California-domiciled investors whose active managers are tactically allocating new capital into Treasuries in lieu of municipals.

For an active manager with the flexibility to tactically allocate into U.S. Treasuries, these municipal bond investments illustrate missed opportunities in capturing additional after-tax yield while taking on less risk, given the deep liquidity and government backing that U.S. Treasuries provide.

Passive municipal bond investing typically focuses on managing portfolios that generate 100% federally tax-exempt income, overlooking the bigger picture. We believe investors should focus on the after-tax yield vs the tax-exempt yield.

Active management with a focus on after-tax yield can produce higher income levels and improve the risk profile and liquidity of a portfolio in certain conditions.

Prioritizing the yield curve over lower credit quality

Lower-rated bonds represent another segment of the market that tends to be less appealing in today's environment.

Given the additional credit risk associated with BBB-rated bonds, investors should be compensated with higher yields when compared to higher-rated bonds (e.g., AA).

However, owing to the combination of a steep yield curve and, in our observation, tighter-than-average credit spreads, in certain instances, investors can capture yields in AA- and AAA-rated bonds that are similar to those of BBB-rated bonds by moving only slightly longer in maturity.

This table shows two instances that demonstrate this point.

The yields of the BBB bonds are comparable to those of AA and AAA-rated bonds, with just two years or four years longer maturities in these examples — a compelling value in our opinion, given the six-notch difference in credit rating.

These examples underscore our view that in today's market, unconstrained investors are generally better served by seeking income through high-quality bonds positioned further along the yield curve, rather than undertaking additional credit risk by moving down the quality spectrum.

Conclusion

Given the characteristics of the municipal bond market, we are seeing dislocations occur that provide possibilities for active managers to maximize value for investors.

In more passive strategies, certain transactions may prove suboptimal for the prevailing market environment.

Passive municipal bond ETFs and similar passive products may limit their responsiveness to evolving market conditions.

For instance, some short-maturity ETFs have over 15% of their portfolio in California bonds despite the rich valuations discussed earlier.

We believe skilled active managers, on the other hand, can adapt to market conditions like those that exist today.

Managers who can move across instruments, maturities and structures, guided by after-tax economics, are better positioned to turn transitory dislocations into lasting advantages.

Peter Aloisi is a fixed income portfolio manager at A&M Private Wealth Partners (AMPWP), where he focuses on tax-advantaged intermediate and short-duration strategies tailored to the unique needs of ultra-high-net-worth clients. Throughout his career, he has enhanced client value by identifying optimal risk-reward opportunities within the municipal bond landscape, leveraging market dislocations across various cycles.

Abdulla Begai is a director and head of Fixed Income Trading at AMPWP and a founding member of the firm. He brings deep expertise in financial analysis, risk management and portfolio construction, combining rigorous analytical skills with intuitive market insight to deliver consistent, risk-adjusted returns. Abdulla specializes in structuring tax-advantaged municipal bond portfolios, blending internal credit analysis with broader market dynamics.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Many retirees tell me the same thing: "Joe, I don't want to check the market every day, and I don't want to make a stupid mistake."

Our clients — hardworking, frugal, diligent savers — do not want to jeopardize their past 30 to 40 years of hard work and sacrifice. Yet, many retirees I talk with are unknowingly taking more risk than they ever intended, which is why the old-school, cookie-cutter 60/40 portfolio is encouraged to maintain a balance between protection and growth.

The problem is that the 60/40 portfolio may not be as personalized and could even be taking on more risk than you want.

What got you here won't get you there

During your career, you're in the accumulation phase. You're working hard, saving diligently and climbing the mountain slowly but surely. You have the time, income and flexibility to ride out the market ups and downs, but in retirement, you enter a new stage called the distribution phase.

The first five to 10 years of your retirement are known as the "fragile decade," and one wrong step can lead to a fall that is much harder to recover from.

Imagine you're playing football:

• You're up by 7 points, fourth down, on your opponent's 20-yard line, with two minutes left. The win is right in front of you.
• Do you throw a risky pass into the end zone?
• Or do you kick the field goal, protect the lead and finish strong?

Retirement investing is the same concept. You've won the game. Protect the lead.

Why time matters more than anything

Think of a tape measure stretched to 90 inches. That represents your potential lifetime.

• At age 25, you're only a quarter of the way in and may have 65 years or so ahead of you. If markets fall, you have time to recover.
• At age 60, you're much closer to the end of the tape. If markets drop 20% and you're taking withdrawals, you may not have time to rebuild. That's why risk must be handled differently in retirement.

The "set it and forget it" methods from your working years may no longer serve you well.

The bucket strategy: A simple way to invest in retirement

To make investment planning easier, we consider a two-bucket strategy for many of our clients:

1. The Protection Bucket

Money in this bucket should not lose value when the stock market drops. Its job is to ensure:

• Stability
• Predictability
• Moderate growth to keep up with inflation

This bucket may include:

• Money market accounts
• Treasuries
• CDs
• Annuities

These may not be the flashiest or highest-return products out there, but some people say you cannot put a price on peace of mind.

2. The Growth Bucket

This bucket focuses on long-term growth using diversified investments such as:

• ETFs
• Index funds
• Large-, mid- and small-cap stocks
• U.S. and international companies
• Value and growth strategies
• Sector diversification (e.g., health care, technology)

The goal is to have hundreds of companies represented so one failure does not sink the ship. This structure allows retirees to enjoy the upside of the market without risking their entire nest egg.

Why the 60/40 portfolio falls short

For decades, retirees have been told that a 60% stock and 40% bond portfolio creates the "right" balance of growth and protection, but here's the uncomfortable truth: Bonds (which are recommended for the protection side of the plan) are not always safe.

From August 2020 to October 2022, BND, a major bond index, fell nearly 20%. If you had $500,000 in "safe" bonds during that period, you would have lost $100,000.

That's why we often restructure this portion of a portfolio, aiming for similar or better long-term returns with less downside risk than traditional bonds.

Real clients, real allocations

Now, the next question is, do we need 40% protected, or can we seek more growth? Well, that depends on your situation, but if you are a diligent saver or have a pension, then you may want to rethink this. (You also might want to check out my article If You're in the 2% Club and Have a Pension, the 60/40 Portfolio Could Hold You Back.)

Here are three examples that show what this looks like in practice:

Family No. 1: Pension + Social Security + $1.2 million saved

• Income needed: $80,000
• Pension + Social Security: $110,000
• Protection bucket: $200,000
• Growth bucket: $1 million

Family No. 1's pension and Social Security are their protection bucket. They could take zero risk if they wanted, but they wanted an emergency fund to tap in case they incurred any large expenses over the next five to 10 years.

Family No. 2: No pension + $5 million saved + high-income needs

• Income needed: $150,000
• Social Security: $70,000
• Protection bucket: $800,000 (10 years of income)
• Growth bucket: $4.2 million

This family is concerned about sequence of returns risk, so they prefer more protection. A 60/40 portfolio would have placed $2 million in bonds, needlessly limiting their growth.

Their custom plan protects what matters while still allowing meaningful long-term growth.

Family No. 3: No pension + $1 million saved

• Income needed: $110,000
• Social Security: $70,000
• Protection bucket: $400,000 (10 years of income)
• Growth bucket: $600,000

This is where the 60/40 model could make a lot of sense, but instead of bonds, we may look to be more strategic with the vehicles used.

Do you have a plan or just a portfolio?

A portfolio is a collection of investments. A plan is a strategy with purpose.

It considers:

• Risk tolerance and risk capacity
• Time horizon
• Income needs
• Pensions or Social Security
• Tax planning
• Long-term and legacy goals

We always tell our clients that there is no perfect investment, but there is a plan built specifically for your situation that can optimize your decision.

That's why blindly following cookie-cutter approaches, such as a 60/40 portfolio, can leave you overexposed, underprotected or missing opportunities.

The bottom line

Retirement isn't about beating the market; it's about making your savings last and helping you live the life you've earned, without unnecessary stress.

If you're like the people we work with, a pensioned public servant or a Midwestern Millionaire (I wrote a book on this that you can request for free here) who saved your way to financial freedom, you deserve a plan that will protect your life's hard work.

A cookie-cutter portfolio can't do that, but a personalized plan can.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Think your portfolio is diversified? If it's just stocks and bonds, you might be missing a crucial layer: Including government balance sheets.

Municipal bonds — issued primarily by states and cities — bring something different to the table. They're secured by independent government revenue streams and local financial strength, offering investors steady income and a way to help maintain stability when conditions shift at the federal level.

In today's uncertain environment, adding munis to your mix isn't just an effective tax-management strategy — it's also a way to build resilience into your portfolio.

Why governmental diversification matters

The U.S. federal government carries enormous fiscal responsibilities, but municipal issuers — states, cities, counties and local authorities — operate under separate and distinct financial frameworks. They rely on local revenue sources, not federal borrowing, and manage their finances independently, as established under the U.S. Constitution.

This independence creates a powerful diversification benefit. When markets react to fiscal headlines or economic uncertainty, municipal credit quality doesn't automatically follow. Most muni issuers maintain strong balance sheets and conservative debt practices, making municipal bonds a steadying force.

For investors, that means a diversified pool of municipal bonds can help smooth out idiosyncratic government-specific fluctuations, providing steady income and resilience even when federal finances are in the headlines.

Layers of support: The cascade effect

Many crucial segments of the tax-exempt bond market can be supported by their local communities or even states. Consider the New York Metropolitan Transportation Authority (MTA). It's a large, complex issuer with multiple revenue streams including fares, tolls and dedicated taxes.

The MTA's resilience goes deeper: It benefits from overlapping layers of support, including state backing, regional cooperation and, in some cases, federal grants. This "cascade effect" of intergovernmental support helps keep the system running, even in times of stress.

These relationships can be structural, designed to ensure essential services continue. For investors, municipal bonds aren't just another government security. They're a distinct ecosystem, often with various levels of safeguards.

Geographic and economic diversification: Tapping into local strengths

Municipal bonds offer exposure to the diverse strengths of America's local economies.

State and local governments operate in environments shaped by regional industries and demographic trends. Investing in a range of municipal bonds taps into different regional economies, from tech-driven cities to agricultural heartlands, helping your portfolio remain resilient as conditions shift across the country.

This diversification means your investments aren't tied to any single region. When one area faces challenges, others might thrive, providing balance for long-term investors.

Credit quality

Municipal bonds stand out as one of the highest-quality segments of the fixed-income market. Most carry investment-grade ratings, with more than two-thirds of the Bloomberg Municipal Bond Index in the AA category or higher as of December 31, 2025. Defaults are rare and typically isolated.

This credit strength reflects prudent fiscal management at the state and local levels. Balanced budget requirements, rainy-day funds and conservative borrowing practices all contribute to soundness.

These practices make municipal bonds a compelling choice for investors seeking predictable income and some diversification from federal fiscal volatility.

One of the most persistent misconceptions in the market is that federal deficits somehow translate into municipal credit risk. They don't. State and local governments aren't responsible for federal obligations, and their ability to meet debt service depends on local economic conditions.

Dispelling misconceptions

One of the most persistent misconceptions in the market is that federal deficits somehow translate into municipal credit risk. They don't. State and local governments aren't responsible for federal obligations, and their ability to meet debt service depends on local economic conditions.

Another common misconception is that municipal bonds depend on federal aid. While federal funds sent to states and cities can occasionally be delayed or reduced, legal safeguards help ensure most commitments are honored. Even if adjustments occur, the impact is typically limited.

To our knowledge, no state or local governments are dependent on federal transfers. In rare cases in which funding changes lead to short-term challenges, issuers generally stabilize by relying on their own diverse revenue sources or managing expenses.

A strategic pillar for resilient portfolios

Governmental diversification isn't just theory. It's a practical strategy for resilience. Allocating to municipal bonds reduces concentration risk tied to federal fiscal policy and provides exposure to a broad, decentralized network of issuers.

For long-term investors, that diversification can be invaluable. It complements other portfolio strategies, helping to smooth returns through economic and political cycles.

Key takeaways for investors

In a world where headlines spark volatility, municipal bonds may offer a steadier path to resilience. They're not immune to risk, but their independence and strong credit fundamentals make them a powerful tool for diversification.

As you look ahead, remember: Government risk isn't one-size-fits-all. Think in layers and variety of independent issuer balance sheets. Municipal bonds can help you build a portfolio that's ready for changing economic landscapes.

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• Such Attractive Yields in High-Grade Munis Are Rare and May Not Last Long
• Remembering Bogle: A New Standard for Municipal Investing

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

With the Federal Reserve resuming rate cuts, many investors and advisers might be reassessing their short-term liquidity strategies.

Thanks to their stable value, minimal duration and attractive yields, money market funds have become enormously popular in recent years, amassing a record high of $7.5 trillion in assets as of July, according to the SEC.

But money market funds are just one option for managing short-term liquidity needs. Ultra-short and short-term bond ETFs are gaining traction among advisers; ultra-short ETFs are the fastest-growing fixed income ETF category over the past year.

Ultra-short and short-term ETFs can help investors more precisely manage their liquidity needs.

Here are seven reasons why you should consider them in your portfolio.

1. Lower reinvestment risk than money markets funds

In a falling rate environment, money market funds will reflect declining yields faster.

Because of their slightly longer duration, ultra- and short-term bond ETFs may have lower reinvestment risk — the risk that your options once the bond matures will have lower yields than are available today.

2. Higher interest rate risk, a positive in the right environment

Bond funds have higher interest rate risk than money market funds, but this can benefit investors when rates fall, boosting bond prices.

It's important for investors and advisers to carefully weigh how anticipated changes in monetary policy and yield curves can affect the relative attractiveness of short-term bond ETFs vs money market funds.

Some professionals see ultra-short bond ETFs as alternatives to money market funds for immediate needs given their comparable duration profile, while short-term bond ETFs complement money market funds for longer-term savings goals. Consider each in the perspective of an overall portfolio.

3. Historically higher risk-adjusted returns

Ultra-short and short-term bonds have typically provided higher returns than bank accounts, money market funds and CDs because of their slightly longer maturities, though with modestly higher volatility.

This trend may persist with a normalizing yield curve.

ETFs also provide on-demand liquidity during market hours, comparable to money market funds and bank accounts, and avoid the lock-up periods of CDs.

4. Tax efficiencies

ETFs can be more tax-efficient than traditional mutual funds because in-kind transfers help minimize capital gains distributions.

However, overall tax treatment depends on the securities held, not just the ETF structure.

For example, money market funds do not distribute capital gains, and tax-exempt income depends on the underlying assets.

5. Lower costs

ETFs generally have lower average expense ratios than their mutual fund peers, but are subject to premium/discount volatility and bid-ask spreads. Investing with a large, reputable ETF issuer can help reduce total cost of ownership.

6. More customization and flexibility

There are ETFs for just about any duration, credit quality or sector. A portfolio of ETFs can be tailored to meet a client's goals, risk profile, tax strategies and tiered spending needs.

7. Accessibility

Unlike bank products or mutual funds, ETFs are available to anyone with a brokerage account with no investment minimums.

The right tools for the right time horizon

Cash and liquidity management is a function of risk tolerance, time horizon and spending needs. Having a framework in place can ensure clients have the optimal amount of cash in their portfolio.

Immediate spending needs within three months or less. Assets needed this soon should be in money market funds or possibly ultra-short ETFs invested in Treasury bills or other securities with maturities of 90 days or less.

Upcoming expenses up to a year. Ultra-short ETFs with an average duration of less than one year might be more appropriate for this time horizon.

Planned expenses from one to two years. Short-term bond ETFs become more viable for this time horizon, depending on the client's financial situation and comfort level.

Investors and advisers should evaluate liquidity tools not just by yield, but by strategic fit within the broader portfolio. Money market funds offer safety for immediate needs, while short-term ETFs provide dynamic solutions for those seeking higher returns and greater flexibility as rates decline and market conditions evolve.

For many clients, the optimal approach will involve blending both vehicles, ensuring they have the right liquidity resources over different time horizons.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

You might recognize Vanguard for its wide lineup of low-cost equity index funds and the lasting legacy of its late founder and chairman, John Bogle. Less appreciated is that The Vanguard Group, which Bogle founded in May 1975, has also been a major force in bond investing for decades.

That presence dates back to 1986. Fresh off the launch of its first stock fund, Vanguard introduced the Vanguard Total Bond Market Index Fund (VBTLX). At the time, this was a meaningful shift.

For individual investors, buying bonds typically meant going through a Wall Street bond desk or working with a financial adviser. Pricing was opaque because most bonds trade over the counter, and even placing an order was cumbersome.

The math behind bond pricing, yield calculations and duration also created a steep learning curve for retail investors.

Vanguard's solution was to bundle thousands of investment-grade bonds into a single fund. The portfolio included U.S. Treasury bonds, agency mortgage-backed securities and corporate bonds, with exposure spread across short, intermediate and long maturities.

Instead of navigating individual bond trades, investors could gain diversified fixed-income exposure in a low-cost, liquid and accessible format.

Fast forward to today and the Vanguard Total Bond Market strategy is still around, now offered in multiple share classes and at lower costs than ever. More importantly, it represents just one piece of a much broader fixed-income lineup.

Investors who prefer to stay within Vanguard's ecosystem can build a complete bond allocation using its mutual funds and ETFs, without needing to look elsewhere.

Here's what you need to know when choosing the best Vanguard bond funds.

The buyer's guide to Vanguard bond funds

According to Vanguard's built-in mutual fund and ETF screener, out of roughly 370 total funds, 128 are classified as "fixed income." Choosing between them comes down to three core considerations.

First is your risk tolerance. This refers to how much day-to-day market volatility you can handle and, more importantly, how deep of a drawdown you can tolerate and for how long.

Bonds are often viewed as a stabilizing force, but that does not mean they are immune to losses. Being honest about how much volatility and downside you can withstand is essential before selecting a bond fund.

Second is your time horizon. Bond maturity should generally align with when you expect to need the money. If you are investing for the long term, longer-maturity bond funds may make sense.

If the goal is shorter-term, such as saving for a home down payment or an upcoming tuition bill, shorter-term bond funds are usually more appropriate because they are less sensitive to interest rates.

Third is your investment objective. Some investors use bonds primarily to balance a portfolio and reduce overall volatility. Others prioritize income. This distinction helps determine the right credit quality.

High-quality Treasury or investment-grade bond funds are typically better for stability, while high-yield corporate bond funds, or junk bunds, can provide more income but come with higher credit risk.

Vanguard's screener makes this process straightforward. Investors can filter funds by credit quality, ranging from high to low, and by maturity, from short to long.

These two levers form the foundation for selecting the right bond fund.

There are also some practical details to understand, starting with the fact that many Vanguard bond strategies are available as both mutual funds and ETFs.

This structural flexibility stems from a now-expired Vanguard patent that allowed certain mutual funds to offer ETF share classes, improving tax efficiency and accessibility.

Mutual funds typically come in "investor shares" and "admiral shares" versions.

Investor shares usually have higher expense ratios but lower minimum investments, while admiral shares offer lower expense ratios with a typical $3,000 minimum investment requirement.

Another version, "institutional shares," is intended for use by pension funds, endowments and insurance companies.

Vanguard's bond ETFs, by contrast, require only the price of a single share, or less if your brokerage supports fractional shares.

Bond ETFs trade throughout the day, like stocks, while bond mutual fund orders settle once daily at net asset value.

Regardless of structure, Vanguard bond funds generally pay monthly distributions.

Although individual bonds usually pay interest semi-annually, bond funds pool those payments and distribute them monthly, which can make income more predictable for investors.

How we picked the best Vanguard bond funds

Picking the right bond fund from a lineup of 128 options is very much a your-mileage-may-vary decision. What works well for one investor may not work for another.

A retiree may prioritize a Vanguard bond fund focused on high-quality U.S. Treasuries to preserve capital.

A younger investor may be more willing to accept lower credit quality in exchange for higher income.

Others may simply want the lowest-cost, most diversified option available.

With that in mind, we selected five Vanguard bond funds that each serve a distinct purpose rather than trying to crown a single "best" option.

Each fund was chosen to represent one of the following categories: minimum fees; high safety; above-average yield; good tax efficiency; and maximum diversification.

Within each category, we limited our choices to funds with at least $1 billion in assets under management to ensure scale, liquidity and longevity.

We also applied a strict cost discipline. While Vanguard is known for low fees, differences still matter over time.

We capped the expense ratio at 0.25% annually, which translates to $25 a year in fee drag on a $10,000 investment.

For each fund, we highlight the key details investors need to evaluate suitability.

This includes the expense ratio, minimum investment requirements where applicable, the 30-day SEC yield and the availability of different share classes.

Vanguard Total Bond Market Index Fund Admiral Shares

• Dual share class: Yes (ETF)
• Expense ratio: 0.04% (0.03% for ETF)
• 30-day SEC yield: 4.31%
• Minimum investment: $3,000

Today, the Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) is available with a modern counterpart, the Vanguard Total Bond Market ETF (BND). Vanguard's first bond fund tracks the Bloomberg U.S. Aggregate Float Adjusted Index, a broad benchmark designed to represent most of the U.S. investment-grade bond market.

The portfolio spans corporate bonds, U.S. Treasuries, mortgage-backed securities and asset-backed securities across short, intermediate and long maturities.

Individual bond maturities range from about one year to more than 25 years. From a credit perspective, most holdings fall into AA, A and BBB ratings, alongside a large allocation to U.S. government bonds.

Because of this wide maturity mix, the fund's average duration sits at 5.8 years. That translates to moderate interest-rate sensitivity.

All else equal, a 1% rise in interest rates would be expected to reduce the fund's net asset value by about 5.8%, while a 1% decline in rates would have the opposite effect. Investors are currently compensated for taking that risk with a 4.31% 30-day SEC yield.

The 0.04% expense ratio makes VBTLX extremely affordable, even with the $3,000 minimum investment.

BND, meanwhile, carries a lower 0.03% expense ratio and trades at a market price of $73 per share, making it easier to access for new investors.

Learn more about VBTLX/BND at the Vanguard provider site.

Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares

• Dual share class: Yes (ETF)
• Expense ratio: 0.06% (0.03% for ETF)
• 30-day SEC yield: 0.60% (before inflation adjustment)
• Minimum investment: $3,000

Bond investors face two primary risks: credit risk and interest-rate risk. Credit risk shows up when lower-quality bonds lose value during economic stress. Longer-term bonds are much more exposed to rate changes, which is why long-duration bond funds suffered double-digit losses in 2022.

If your priority is safety, the Vanguard Short-Term Inflation Protected Securities Index Fund Admiral Shares (VTAPX) stands out. The fund holds Treasury Inflation-Protected Securities (TIPS).

TIPS' principal value rises when inflation increases. Their value falls when inflation declines. Because interest payments are calculated as a percentage of that inflation-adjusted principal, the size of the coupon payments also changes over time.

VTAPX further reduces risk by focusing on short-maturity TIPS. The fund's average duration is about 2.5 years, which limits sensitivity to interest-rate increases that often accompany higher inflation. That combination of government credit quality and short duration makes it more defensive.

The stated 0.60% 30-day SEC yield can look underwhelming at first glance, but it doesn't include the inflation adjustment to principal. Actual income can end up higher or lower depending on how inflation evolves, which is the entire point of holding TIPS as an inflation hedge rather than a pure income vehicle.

Like many Vanguard bond funds, VTAPX is also available as an ETF in the form of the Vanguard Short-Term Inflation Protected ETF (VTIP).

VTIP cuts the expense ratio in half to 0.03% and removes the $3,000 minimum investment. The ETF can be purchased for roughly $50 per share, making it more accessible for many investors.

Learn more about VTAPX/VTIP at the Vanguard provider site.

Vanguard High-Yield Corporate Fund Investor Shares

• Dual share class: Yes (Admiral Shares)
• Expense ratio: 0.22% (0.12% for Admiral Shares)
• 30-day SEC yield: 6.09%
• Minimum investment: $3,000 ($50,000 for Admiral Shares)

One of the most established principles in fixed-income investing is that higher credit risk is typically compensated with higher income.

Moving beyond U.S. Treasury bonds takes you to investment-grade corporate bonds. Moving one step further takes you to high-yield corporate bonds, often referred to as junk bonds. These are bonds with credit ratings below BBB.

Vanguard offers exposure to this segment through the Vanguard High-Yield Corporate Fund Investor Shares (VWEHX). The fund charges a 0.22% expense ratio with a $3,000 minimum investment. Investors with $50,000 available can access the Admiral Shares version VWEAX, which lowers the expense ratio to 0.12%.

This fund carries real risk. While it holds over 1,000 individual bonds, credit quality is firmly in speculative territory. More than half of the portfolio is rated BB, roughly another third is rated B, and a smaller portion is rated CCC or lower. During economic slowdowns, this part of the bond market can experience sharp drawdowns alongside equities.

That risk is reflected in the income. VWEHX is one of the highest-yielding bond funds in Vanguard's lineup, with a 6.09% 30-day SEC yield for the Investor Shares. The lower expense ratio of the Admiral Shares pushes the yield to 6.19%. This makes the fund appealing for income-focused investors who can tolerate volatility and potential credit losses.

However, tax efficiency is a drawback. Interest income from corporate bonds is fully taxable at both the federal and state level, making this fund better suited for tax-advantaged accounts such as Roth IRAs rather than taxable brokerage accounts.

Learn more about VWEHX/VWEAX at the Vanguard provider site.

Vanguard Tax-Exempt Bond Index Fund Admiral Shares

• Dual share class: Yes (ETF)
• Expense ratio: 0.07% (0.03% for ETF)
• 30-day SEC yield: 3.47% (before tax equivalent adjustment)
• Minimum investment: $3,000

For some investors, taxes matter just as much as yield, especially for those in higher income brackets.

As your taxable income rises, each additional dollar of interest income is taxed at a higher marginal rate. That makes fully taxable bond income less attractive in a brokerage account.

Municipal bond funds address this issue by providing income that is exempt from federal income tax and, in some cases, state taxes as well. For broad national exposure, it's hard to beat the Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX).

The fund tracks the Standard & Poor's National AMT-Free Municipal Bond Index and holds investment-grade municipal bonds issued by states, cities, and public authorities.

While not risk-free, the fund maintains relatively strong credit quality. Most holdings are rated AA, with the remainder largely split between AAA and A, reflecting the essential nature of the underlying projects and the broad diversification across issuers.

The stated 3.47% 30-day SEC yield is exempt from federal income tax and the alternative minimum tax. That means investors should evaluate it using tax-equivalent yield, which estimates the taxable bond yield required, based on your tax bracket, to generate the same after-tax income as VTEAX would.

VTEAX is also available as an ETF. The Vanguard Tax-Exempt Bond ETF (VTEB) cuts the expense ratio to 0.03%, removes the $3,000 minimum investment and trades at roughly $50 per share, making it more accessible for smaller portfolios.

VTEB also reports a slightly higher 30-day SEC yield due to lower ongoing costs.

Learn more about VTEAX/VTEB at the Vanguard provider site.

Vanguard Total World Bond ETF

• Dual share class: No
• Expense ratio: 0.05%
• 30-day SEC yield: 4.21%
• Minimum investment: N/A

The Vanguard Total World Bond ETF (BNDW) is arguably Vanguard's most diversified bond fund. The low-cost ETF tracks the Bloomberg Global Aggregate Float Adjusted Composite Index.

This benchmark spans more than 18,000 bonds worldwide, covering government and investment-grade corporate debt across U.S. and international markets, including both developed and emerging economies. The fund currently offers a 4.21% 30-day SEC yield.

BNDW is structured as an ETF of ETFs, allocating roughly half of its assets to BND and the other half to the Vanguard Total International Bond ETF (BNDX). While investors could replicate this mix themselves, BNDW packages it into a single, highly efficient vehicle at minimal cost.

One important detail is that BNDX is currency-hedged, since its underlying bonds are issued in foreign currencies while the ETF trades in U.S. dollars.

This hedging reduces the impact of currency fluctuations, so returns are driven primarily by bond performance rather than movements in foreign exchange rates.

Learn more about BNDW at the Vanguard provider site.

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Invesco created its BulletShares suite of exchange-traded funds (ETFs) to help investors build bond ladders — a strategy that involves buying bonds with staggered maturity dates. But these funds can be useful in other ways.

In 2022, when we added Invesco BulletShares 2026 Corporate Bond (BSCQ) to the Kiplinger ETF 20, the list of our favorite ETFs, the fund met our objective of finding a short-term, high-quality corporate bond fund with below-average duration (a measure of interest-rate sensitivity).

Since then, the fund has exceeded expectations. From mid-2022 through October, BulletShares 2026 Corporate Bond returned 4.3% annualized, beating the 3.1% gain of the Bloomberg U.S. Aggregate Bond Index, with half the volatility.

But as its name implies, all the bonds in the fund mature in 2026. That means as the IOUs it holds are paid off over the course of the year, the fund's portfolio will slowly morph from a short-term corporate debt fund into a cash fund.

Starting in July, says Justin Danfield, former senior fixed-income ETF strategist at Invesco, the fund will cease buying new bonds, and the fund's stakes in cash and 13-week Treasury bills will increase. Finally, sometime in mid-December 2026, the fund will close, and shareholders will receive a cash distribution of their shares.

What should investors do now?

If you hold shares in this fund, and you're using it primarily as a place to park short-term cash, you can stay put. Bear in mind, however, that the fund's yield, currently 4.0%, will start to shrink a bit starting in July, says Danfield.

T-bill yields, nearly 3.8% recently, are competitive with money market funds for now, but Danfield expects T-bill yields to fall as the Fed continues to lower short-term lending rates in 2026.

Otherwise, you could consider shifting assets in the BulletShares fund into one of the Kip ETF 20 core bond funds, the Fidelity Total Bond ETF (FBND) or the State Street DoubleLine Total Return Tactical ETF (TOTL). Meanwhile, we'll be assessing alternatives for the BulletShares fund in the coming months.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Whether you're pleased or disappointed about the resumption of the Federal Reserve's rate-cutting cycle may depend on whether you are primarily a borrower or a saver. Regardless of where you fall on that spectrum, if you're an investor, now is a good time to review your portfolio and make some tweaks to accommodate — and capitalize — on a lower-rate regime.

The quarter-point rate cut from the Fed in September was the first since December 2024. The central bank followed this up with another one in October, and while it's too soon to call the December meeting, more rate cuts are expected in 2026.

Traders were recently betting that by next April, the federal funds rate (the interest rate that banks charge each other for overnight loans) would sink to a target rate of 3.25% to 3.5%, according to CME Group's FedWatch tool. That's a full percentage point lower than the Fed's benchmark rate in early September — two points lower than when the current monetary easing cycle began in September 2024.

The good news for investors is that lower interest rates are largely positive for stocks — even in the second year of a rate-cutting cycle. Dating back to 1990, the S&P 500 Index has gained an average 11% in price in year two of Fed rate cuts, according to Sam Stovall, a market historian and chief investment strategist at research firm CFRA.

Zeroing in on how the market performs following a pause of several months during a rate-cutting cycle, Ryan Detrick, chief market strategist at wealth management firm Carson Group, found that since 1970, the S&P 500 has been higher nearly 91% of the time in the year following the resumption of rate cuts, returning an average 12.9%.

Of course, a lot depends on the health of the economy and whether rate cuts are occurring when a recession is imminent or underway or when the economy remains relatively healthy. Looking at the 45 rate-cutting campaigns going back to 1954, market strategists at Glenmede, another wealth management firm, found that the average S&P 500 gain over the course of the cycle was 13%; with no recession the average gain was 24.2%, and with a recession it was just 6.6%.

"We look at the economy as still on fairly firm footing," says Detrick. Although there are signs of labor-market slowing, there is also evidence of stronger-than-expected retail sales, he notes. "We have an okay economy being led by very strong corporate earnings growth. A Fed rate cut is the cherry on top, and they are likely to cut well into 2026. That's bullish for equities," he says.

Strong stock sectors for Fed rate cuts

Historically, the sectors that have performed best in the second year of rate cuts include real estate, financials, tech, health care and consumer staples, according to CFRA. That might not be the case this time around: Although Stovall currently recommends investors overweight stocks in the financial and tech sectors (as well as communications services), he has an Underweight rating on health care stocks, and he sees real estate and staples shares merely keeping pace with the market.

It's simply too early to shift into sectors traditionally considered more defensive, says Detrick. He still likes large-cap stocks in the financial, tech and industrial sectors, which have been leaders in the current bull market. "We're sticking with the ones who brought us to the dance," he says.

Nonetheless, it's a good time now, especially if you're nervous about the market's highfliers, to make sure you have some exposure to midsize- and small-company stocks, he adds, as well as international fare.

Lower rates may be the catalyst long-suffering small-cap stocks have needed. Indeed, on the heels of the September rate cut, the Russell 2000 Index, a popular small-cap benchmark, hit its first new high since November 2021 — an interval when the S&P 500 set 89 new highs, according to Stovall.

As interest rates drop, "small-cap companies are likely to benefit disproportionately," note the strategists from Glenmede. That's because more than half of small-cap debt is issued at floating rates. "As interest expenses fall," they say, it "should provide a meaningful tailwind to earnings."

Moreover, small firms should see a more sizable benefit from corporate tax relief, while also being less exposed to the impact of tariffs than large companies, according to Glenmede. And despite the recent rally, valuations remain compelling compared with their blue-chip cousins. "Small- and mid-cap stocks could have a very long runway — well into 2026, we think," says Detrick.

A good way to add more exposure to mid- and small-cap stocks is with the iShares Core S&P Mid-Cap ETF (IJH) and the iShares Core S&P Small-Cap ETF (IJR). Both exchange-traded funds are members of the Kiplinger ETF 20, the list of our favorite ETFs. (Prices, returns and other data are as of September 30.)

Step away from cash

You've no doubt noticed that your cash is earning less. But further deterioration in the economy — continued weakness in the job market, say — could send cash yields to the basement. "The imperative to put cash to work is increasing," say strategists in the chief investment office at UBS Financial Services.

For short-term spending needs, stick with the modest yields on certificates of deposit and money market funds, they advise. For expenses that are one to three years away, consider a bond ladder, with IOUs of staggered maturities.

Cash earmarked for needs up to five years out can be invested in intermediate-term government or investment-grade corporate bonds, according to UBS. Baird Aggregate Bond (BAGSX), a longtime member of the Kiplinger 25, the list of our favorite actively managed no-load mutual funds, yields 3.9% and has ranked in the top half of similar funds in seven of the past 10 years.

Or, recommends UBS, consider a multi-sector bond fund, whose managers can pick and choose among a wide array of fixed-income assets.

One to explore is the Pimco Multisector Bond Active ETF (PYLD). The ETF, with a yield of 5.1% and a total return of 7.0% over the past 12 months, had a hefty stake in securitized assets (think pooled mortgage loans and the like) at last report.

Finally, investors looking to replace regular income from cash, and who can tolerate the higher risk of stocks, can seek out dividend payers, such as those found in the Kiplinger Dividend 15, our favorite dividend-paying stocks.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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What does the Federal Reserve's rate-reduction initiative mean in the short run for your fixed-income holdings?

You'll recall that one year ago, the Fed cut three times, starting by hacking its benchmark overnight funds rate by 0.50 percentage point in September. The year ended with bond markets and fund returns in retreat. It's wishful thinking that cheaper short-term credit and falling money market yields will spark a general bond-buying binge and propel your 2025 total returns toward 10% by year-end.

My judgment is that long-dated bonds are expensive and risky and that we are set for an encore of 2024, when the fourth quarter was a downer, with 19 of 23 fixed-income categories in the red, according to Morningstar.

So I do not expect further advances over the 5% to 8% returns earned through the third quarter. Instead, and pardon the cliché, it looks like déjà vu all over again, with a lot of losses and a few breakevens.

"If you have 6% in the bag already, which is 2% a quarter, I figure now it is sideways or giving a little back" the rest of the year, says Warren Pierson, co-chief investment officer for Baird Asset Management.

Last year, every time the Fed cut, rates on the 10-year note and longer maturities increased, meaning a loss of principal, adds Nick Losey, who manages high-yield and asset-backed securities for Barrow Hanley. (Rates and bond prices move in opposite directions.)

He expects a repeat. Inflation is edging higher, the dollar is weak, and there is no sign of fading economic momentum to the degree that traditionally provokes big flows into Treasury bonds and forces those yields down.

Hang tight

These are not sell signals, just a reality check. Credit conditions are good, yields are respectable, and enough pension funds, banks and insurance companies will keep buying even as individuals withdraw money from bond mutual and exchange-traded funds.

And there is a cavalry of sorts. Bond honcho Christian Hoffmann at Thornburg Investment Management insists that when 30-year Treasuries reach 5%, a herd of buyers will arrive and stanch the sell-off. That may be true, and if you think 5% through 2055 is a fair deal, that is your business. I disagree, and I advise against long T-bonds virtually anytime — and especially now.

Fixed-income thinkers and managers just cannot shake their unpleasant memories of how last fall's Fed rate cuts hurt, rather than helped, bond values.

Morningstar's fourth-quarter 2024 figures tell this story as well as anyone. The four gainers in that list of 23 were floating-rate bank loans and high-yield bonds, which are more correlated with stocks than with Treasuries; ultra-short bonds, which are tantamount to cash and rarely lose any principal under any conditions; and, in a surprise, non-traditional bond funds, which are go-anywhere, actively traded portfolios. All four categories are still in fine shape and are definite keepers.

Municipal bonds also held up in last year's fourth quarter, with some of the smallest losses on the charts. Tax-exempts are well positioned to end 2025 on a better note, even if taxable bonds struggle. The oversupply of municipals that dragged down principal values in the first half is no more.

Also in the past is the overblown (but damaging) fear that the budget-and-tax bill would end or limit the tax exemption. But municipals got so cheap that the buyers returned, so the various muni indexes are back in the green for the year to date.

One fund I like is Baird Strategic Municipal Bond (BSNSX), showing a year-to-date return through September of 3.5% and a tax-free yield of 3.3%.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Most kitchens are well-stocked with pantry staples, the foundation of all recipes. But every good chef knows that the best meals feature a variety of flavors, including some spice. Technique is important: Too much or too little of any single ingredient can make a big difference.

The same approach applies to portfolios. Earlier this year, many U.S. investors learned that their mix was off after foreign stocks significantly outpaced U.S. shares … just as the S&P 500 stumbled badly. It quickly became clear that many investors were underexposed to foreign markets and overexposed to the United States.

In a June survey, Schwab Asset Management found that moderate-risk individual investors held just 10% of their portfolios in foreign shares; U.S. stocks, by contrast, made up 61%. In short, investor portfolios weren't diversified.

It was a comeuppance long in the making. For nearly 15 years, U.S. stocks have been the place to be. Why bother to diversify — break up your investments across a variety of stocks, bonds and other assets — when the S&P 500 is beating everything?

"It can be easy to forget the benefits of diversification in a very sharp upward-moving market," says Andrew Altfest, a certified financial planner with Altfest Personal Wealth Management in New York City.

But over time, you'll find that a mix of investments can smooth your returns, strengthen your resolve as an investor, dampen risk in your portfolio and keep you exposed to whichever corner of the market is working at the moment — no crystal ball necessary.

In a truly diversified portfolio, some investments will be in favor while others are on the outs. "You will never own only winners, but you won't get stuck with only the laggards, either," says Jeff DeMaso, editor of The Independent Vanguard Adviser.

A smoother ride

A diversified portfolio can deliver less-volatile returns, which may help you stay the course during turbulent times — and arguably, that's half the battle in achieving your investment goals.

Moderate-allocation funds, also called balanced funds because they stabilize a 60% allocation of assets to stocks with a 40% stake in bonds, have been about one-third less volatile than an all-stock portfolio over the past 10 years.

"When the stock market sells off, investors tend to sell and move into cash. The problem there is, they've divested. So, we always say, stay invested and diversify," says Alessio de Longis, senior portfolio manager and head of asset allocation at Invesco Solutions.

Indeed, diversification isn't a strategy you turn on during rough markets and switch off in roaring bull markets. "It's something you should always have in your portfolio,” says Kristy Akullian, head of iShares investment strategy for the Americas at BlackRock.

Diversification can help ward against risk, too, of which there's no shortage these days. U.S. stocks are trading at high valuations. The economy looks to be slowing. Inflation remains sticky. And uncertainty lingers about the impact of new government policies and geopolitical risks. All of these challenges are chipping away at investor confidence.

Some advisers zero in on risks as a guiding principle for diversifying their clients' portfolios. Worried about a decline in the dollar? Add non-dollar assets — foreign stocks or bonds — to your portfolio. Concerned about an inflationary shock? Fold in a stake in commodities or real estate. A recession? Insert a slug of high-quality bonds or beef up on cash.

"Since I think all of these are potential sources of risk to the stock market, I put a lot of these diversified eggs into my clients' portfolio baskets," says Paul Winter, a certified financial planner at Five Seasons Financial Planning in Salt Lake City, Utah.

Another reason to diversify is that it's impossible to predict which investment will outperform in any given year — so it pays to own a mix of several. "The point of diversification is that you don't know what is going to happen," says Thomas Martin, of Globalt Investments, an Atlanta-based investment firm, but you can be prepared just the same.

The fact is, market leadership can shift dramatically from year to year. Though large-company stocks have topped the charts in many years recently, the winning asset class in any given year is often anybody's guess.

According to the Callan Periodic Table of Investment Returns, a colorful depiction of how asset returns can vary from year to year, small-cap stocks fared best in 2020. In 2018 and 2022, cash prevailed. And emerging markets stocks were the best-performing asset class in 2017; the next calendar year, they were the worst.

While there are rules of thumb to follow, a well-diversified portfolio is "very much an art, not a science," says Winter. For example, you want to own multiple kinds of assets, but that does not mean you own everything in equal measure. "Depending on your overall allocation, you might not need to go super-deep on every category," says Roger Young, a CFP at T. Rowe Price.

The good news: This is a great time to diversify. If, like many American investors, your portfolio is heavily weighted toward U.S. stocks, it's not too late to lighten the load and find opportunities in less-expensive pockets of the market.

"U.S. stocks are near their all-time highs, and that's a lot better time to diversify than, say, back in March 2009," the market's nadir during the Global Financial Crisis, says Winter.

Stocks, bonds and alternative assets are the main elements of a diversified portfolio. But you'll want to make sure you're diversified within those types of investments, too.

In this article, we'll walk you through the ingredients of a good diversification plan, with some timely moves to make now and tips on how to maintain your portfolio. Prices, returns and other data are as of August 31.

Stocks

Stocks can be risky but also rewarding. Over the past 10 years, the S&P 500, which represents more than 80% of the total U.S. stock market, has returned a whopping 15% a year.

But the stock market doesn't move as a monolith — and within your stock holdings, you should assemble a broad mix, considering a number of factors.

Company size

The market can favor companies of a particular size — sometimes for years — depending on economic factors, industry innovations or even just market sentiment.

Over the past decade, thanks to globalization, large companies have ruled, ranking as the top-performing asset class in five of the past 10 years and among the top three performers in eight of the past 10, according to the Callan table.

"The big just got bigger," says Jake Schurmeier, a portfolio manager at Harbor Capital. That makes exchange-traded funds (ETFs) that invest in small and midsize companies, such as the iShares Core S&P Mid-Cap (IJH) and the iShares Core S&P Small-Cap (IJR) — members of the Kip ETF 20, our favorite exchange-traded funds — good diversifiers for the large-cap S&P 500.

Some strategists see an opportunity in midsize-company stocks, especially these days. The middle tier of the U.S. stock market "is uniquely positioned to capitalize on growing demand for American-made goods and infrastructure solutions in a reshoring and energy-independent economic landscape," says Dina Ting, head of global index portfolio management at Franklin Templeton.

Plus, on a price-to-earnings basis, mid-cap stocks now trade at an atypical discount to large caps.

Concentration

Large-company stocks' recent run has included the meteoric rise of tech stocks in general and anything related to artificial intelligence (AI) in particular.

A group that includes Nvidia (NVDA), Microsoft (MSFT) and Apple (AAPL), known as the Magnificent Seven, accounts for one-third of the value of the S&P 500 Index. Thus, what might look like a diversified collection of U.S. stocks is in reality an outsize bet on a dazzling few.

A simple way to mitigate such overconcentration is the Invesco S&P 500 Equal Weight ETF (RSP). In this fund, every company gets an equal share of assets. So, while Nvidia accounts for 8% of the traditional market-cap-weighted index, it makes up just 0.24% of the Equal Weight fund.

Investment style

Professional investors typically hew to a certain methodology. These approaches break down into two broad styles: value and growth. Value managers favor stocks that trade at a discount to various metrics; growth managers prefer companies that are growing faster than average.

The two styles wax and wane at different times, and the cycles tend to last for long stretches. Value won the period from the start of 2000 to 2009. But since then, growth has dominated, though it's worth noting that value stocks held up better during the most recent bear market from January to October 2022.

Because it's difficult to predict when one style is going to outperform the other, even in a bear market, it's important to maintain a toehold in both growth and value strategies.

Chances are, however, that you've got plenty of exposure to growth stocks these days. Consider adding a value-driven fund such as Dodge & Cox Stock (DODGX), a mutual fund that has outpaced the S&P 500 over the past five years, or Capital Group Dividend Value (CGDV), an ETF that has beaten the S&P 500 over the past three years.

Both are actively managed, but index-fund lovers could look at the Vanguard S&P 500 Value ETF (VOOV). The ETF holds its own among a peer group of value-oriented large-company stock funds.

Geography

You need both U.S. and non-U.S. stocks in your portfolio, although many years of U.S. out-performance made that idea unpalatable. That changed in 2025: After lagging the U.S. stock market for nine of the past 11 calendar years, the MSCI EAFE Index, a popular international-stock benchmark, is up nearly 23% so far this year, beating the S&P 500 by more than 12 percentage points.

Most strategists agree that U.S. investors need to boost their exposure to international stocks. The timing is good. A weakening dollar tends to magnify gains in foreign shares (because they translate into more dollars stateside). And foreign stocks are still cheap relative to U.S. stocks on a price-to-earnings basis, even after a strong run so far this year.

Foreign stocks include those in both developed and emerging markets. You can zoom in on a region — Europe, Asia, Latin America, say — or a single country, such as Japan, India, Germany or China. And of course, at every level, you can focus on company size or value or growth approaches.

Start with the Vanguard Total International Stock ETF (VXUS). It's an inexpensive way to get instant exposure to nearly every foreign stock in developed and emerging markets. Morningstar analyst Zachary Evens calls it "wall-to-wall foreign-stock exposure." The fund has gained 23% since the start of the year.

Add an emerging-markets index fund. The iShares Core MSCI Emerging Markets ETF (IEMG) tracks an index of 20-odd developing markets. "A weaker dollar is good for EM stocks," says Richard Cook, a portfolio manager of Cook & Bynum fund. A recent rebound in Chinese stocks — 27% of the index — has helped the fund return 18% over the past 12 months.

Baron Emerging Markets (BEXFX) — a member of the Kiplinger 25, our favorite no-load mutual funds — is actively managed, growth focused, and has gained 19% over the same period.

These days, many strategists, including T. Rowe Price's Charles Shriver, see opportunity in small, foreign companies. They typically trade at a premium to their larger brethren, but not now. And "small-cap international stocks will benefit from domestic economic growth in home countries and are less sensitive to tariffs," he says.

We have our eyes on the Avantis International Small Cap Equity ETF (AVDS) and the Dimensional International Small Cap Value ETF (DISV). The Avantis fund invests in a mix of growth and value small companies, with a focus on valuation and profitability. Over the past 12 months, it has gained 23%. The Dimensional exchange-traded fund focuses on bargain-priced small stocks in developed countries and has returned 25% over the past 12 months.

Bonds

Bonds provide ballast to the stock side of any portfolio, generally speaking, because when stocks fall, bond values tend to rise. That didn't happen in 2022, when a precipitous rise in interest rates pushed both stocks and bonds down (bond prices and yields move in opposite directions). The S&P 500 fell 18%, and the Bloomberg U.S. Aggregate Bond index sank 13%.

It was the worst year ever for bonds, but a few fixed-income sectors held up better. Bank-loan funds, for instance, lost 2% on average; short-term bond funds dipped just 5%. Ergo, in 2022, a diversified bond portfolio would have outperformed the Agg index.

Broadly speaking, there are four major bond sectors: government, corporate, securitized debt (bundled IOUs such as mortgages or auto loans, say, that are sold as a single security), and municipal bonds, which pay income that's exempt from federal and sometimes state taxes.

A diversified bond portfolio will include a mix of sectors. The Agg index, for instance, is diversified as far as sectors go: Government bonds make up just less than half of the index, corporate and securitized debt combined are another 50%, and the rest sits in cash and muni IOUs. But there are more layers of bond diversification to consider.

Credit quality

Credit ratings reflect a borrower's financial ability to repay debts. The higher the rating, the more creditworthy the issuer is, and vice versa. That's why investment-grade bonds, rated between triple-A and triple-B, are considered high quality — there's little risk of default. Debt rated between double-B and triple-C is often called junk or high yield — there's a higher risk of default, and therefore yields are higher to attract investors.

Bond portfolios should hold mostly high-quality debt at their core. The Vanguard Total Bond Market ETF (BND) and the iShares Core U.S. Aggregate Bond ETF (AGG) are the biggest index-based high-quality bond ETFs. But we prefer active strategies, such as Baird Aggregate Bond (BAGSX) and Dodge & Cox Income (DODIX). Both mutual funds are members of the Kiplinger 25.

Then consider adding lower-quality debt, which can boost the overall yield of a bond portfolio. In late August, for instance, U.S. high-yield corporate debt yielded 6.7%, and bank loans, issued by companies with low credit ratings, yielded 8.6%.

Our favorite high-yield corporate fund, Vanguard High-Yield Corporate (VWEHX), favors higher-quality, double-B junk bonds. But with economic uncertainty ahead, we're partial these days to short-term high-yield bond funds such as the Pimco 0-5 Year High Yield Corporate Bond Index ETF (HYS). Its short-term focus can help dampen default risk, a concern if the economy slows.

Duration and maturity

Investors often confuse duration, a measure of a bond's sensitivity to interest rate moves, with maturity, the length of time a bond will pay interest before it repays the principal. They're not the same, but they are connected.

Maturity plays a part in the calculation of duration. The longer the maturity, the longer the duration and the more sensitive a security is to interest rate shifts.

The typical long-term government bond fund, for example, has an average maturity of 20 years and a 16-year duration. That implies if rates were to rise by one percentage point, the net asset value of long-term government funds would decline 16%, and vice versa. Short-term government bonds have an average maturity of three years and a duration of 2.6 years.

Generally, low-duration bonds are a defensive bet when interest rates are rising, and high-duration bonds stand to benefit most when rates fall. These days, however, even though cuts in short-term rates are on the docket, a fall in long-term rates isn’t guaranteed, says Akullian, the iShares strategist. That's why she favors intermediate-maturity bonds for now.

The iShares 3-7 Year Treasury Bond ETF (IEI) sports a 4.3-year duration. Since the start of the year, it has returned more than 5%. The actively managed Vanguard Intermediate-Term Bond ETF (BIV) favors bonds with maturities of five to 10 years and has a duration of 6.1 years. Its portfolio holds government and corporate debt of medium maturities. So far this year, it has gained 6.4%.

Finally, the Fidelity Investment Grade Securities ETF (FSEC) holds mostly triple-A-rated securitized debt and has a duration of 5.5 years. Its return so far this year is 5.3%.

Geography

For much of the 2010s, foreign bonds sported negative yields. "That's a hard sell," says Schurmeier, the Harbor Capital portfolio manager. But now, foreign bonds offer positive yields, as well as a potential return boost from a weakening dollar. The Vanguard Total International Bond ETF (BNDX) holds high-quality, foreign corporate and government bonds.

Emerging-markets debt offers fatter yields, but these IOUs tend to be more volatile, too, so buyer beware. Our favorite emerging-markets bond fund, Vanguard Emerging Markets Bond (VEMBX), invests in dollar-denominated debt, which becomes easier for developing countries to repay as the dollar weakens.

Alternatives

This catch-all category includes nontraditional strategies that seek to hedge stock and bond market returns, or at least to generate returns that don't move in lockstep with them.

Alternative strategies might focus on gold, commodities, cryptocurrencies, or the debt or equity of private companies. They might employ techniques to limit losses in a downturn but crimp bull market gains. Others balance bets on undervalued stocks by short-selling overpriced names.

"Many alternative strategies weren't even a thing 10 years ago, but they are today," says Winter, the Salt Lake City CFP.

Consider carving out a small slice from the bond side of your portfolio to devote to alternative assets — no more than 5% to 10% of your overall portfolio, says de Longis. One approach to choosing an alternative strategy is to figure out what kind of risk you're trying to hedge against, such as those listed below, and invest accordingly.

Inflation

To hedge inflation, for instance, beyond the protection the stock side of your portfolio may offer, consider commodities. These funds proved their mettle in 2022, returning 16%, on average.

The First Trust Global Tactical Commodity Strategy Fund (FTGC) has outperformed its peers in four of the past five calendar years, with below-average volatility. Neuberger Berman Commodity Strategy ETF (NBCM) boasts above-average returns with below-average volatility, and its expense ratio is below average, too.

Instability

To ward against uncertainty, consider gold. "Gold is a safety net for chaos," says Schurmeier. Trade-war fears have fueled 29% gains in the iShares Gold Trust Micro (IAUM) and the SPDR Gold MiniShares Trust (GLDM, $68, 0.10%) so far this year.

Volatility

To smooth out your returns, consider one of a new breed of ETFs called defined-outcome funds.

One we're eying is the Innovator Defined Wealth Shield ETF (BALT). Using options, the fund provides a 20% buffer on losses in the S&P 500 every three months in exchange for a cap on gains. You can hold the ETF indefinitely. The 20% buffer and cap on gains resets quarterly, in January, April, July and October. The cap set in early July was 2.2% after expenses. Over the past three years, Defined Wealth Shield has returned 7% annualized with less volatility than the Agg index.

Bear in mind that diversified portfolios, in contrast to Tolstoy's happy families, are not all alike. As always, everything depends on your time horizon and your risk tolerance.

"If you're relatively young and are primarily invested in stocks, you might want to make sure your diversification is robust on the stock side, but on the bond side, your small piece in bonds could be a straightforward U.S. investment-grade type of bond fund portfolio," says T. Rowe Price's Young. Similarly, those who are nearing retirement or already retired will want to pay special attention to some inflation hedges.

Over time, your portfolio will need some fine-tuning. Some tweaks are related to age or life stage, says Christine Benz, director of personal finance and retirement planning for Morningstar.

At age 50, for instance, you'll want to de-risk your portfolio a bit around the edges. Tilt toward high-quality, large-company stocks over small-cap fare, for instance. Or favor dividend payers. By your late fifties or early sixties, start shoring up your portfolio with safer assets. On the bond side, for instance, lean into high-quality short and intermediate-term bonds and build up your cash position.

Other adjustments may be tactical, such as investing more in large and midsize companies than in small firms if a recession looms, or favoring short-term bonds over long-maturity debt when interest rates are climbing. Keep the tactical moves to no more than five to 10 percentage points up or down from your overall portfolio targets, says Invesco's de Longis. Any bigger, and you risk derailing your asset-allocation plan.

Finally, review your portfolio asset mix and rebalance, if necessary, once a year. "The more diversified your portfolio, the greater the potential benefits of rebalancing," says Winter. Just don't go overboard. Think of your portfolio like a bar of soap, suggests Benz: "The more you touch it, the smaller it's going to get."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Some bond market watchers say that high-yield bonds – those rated between double-B and triple-C – aren't exactly bargains these days. Others say there's still opportunity in this part of the fixed-income market.

We checked in with Michael Chang, one of two subadvisers behind our favorite junk bond fund, the Vanguard High-Yield Corporate (VWEHX), to get the lowdown. Chang, of Vanguard's in-house bond group, runs one-third of the assets in the fund; Wellington Management's Elizabeth Shortsleeve runs the rest.

Chang concedes that "it's tough to make the case that high-yield bonds are overly attractive today." But in his view, the U.S. economy is healthy, and relative to other parts of the bond market, "high yield offers decent opportunities to generate good income in a market where income is hard to come by." The fund yields just under 6.0%.

The Vanguard High Yield Corporate – a member of the Kiplinger 25, the best no-load mutual funds you can buy – eked past its competition over the past 12 months with an 8.0% return, in part because Chang's portion of the fund was defensively positioned heading into the spring selloff in bonds.

He had a pot of cash and a heavy tilt toward the higher-quality end of high-yield bonds – debt rated double-B and single-B – in defensive sectors such as food and beverage, health care, and utilities. That mix of bonds weathered the April selloff well, Chang says.

Hunting for bargains

Chang and his team of 15 managers, traders and analysts also boosted the fund's performance by snapping up stakes in lower-quality high-yield debt – rated single-B and triple-C – that had sold off, "in some cases dramatically," he says. "April gave us the opportunity that we had been waiting for to invest in some names we liked" but had previously been too expensive, he says, particularly in the retail sector.

Since both he and Shortsleeve became managers of the fund in August 2022, the Vanguard High Yield Corporate Fund has returned 7.9% annualized, just ahead of its high-yield fund peers.

This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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If you spotted a $20 bill on the sidewalk, would you pick it up? Most of us wouldn't hesitate.

Yet in today's municipal bond market, many investors walk past what could be the fixed income equivalent of that $20 — especially in the intermediate to long end of the yield curve.

Municipal bonds offer some of the most attractive tax-exempt yields we've seen in more than a decade.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Unlike the past, when munis were primarily a tool for the wealthiest investors, today's environment is opening the door for a broader range of U.S. taxpayers to benefit, as long as they're comfortable with intermediate or long-term strategies.

With a steep yield curve, strong credit fundamentals and yield levels that provide a meaningful income buffer, the case for embracing duration in munis has rarely been stronger.

More taxpayers can benefit from munis

A confluence of volatility in the Treasury market, combined with a robust supply of new municipal issuance, has pushed long-term tax-exempt yields to historically cheap levels.

The yield spread between 10-year and 30-year maturities is now the steepest it's been since 2013, with a difference of nearly 1.5%.

Investors are paid handsomely to invest in high-quality long-dated munis. For those in the highest tax brackets, taxable-equivalent yields on long-term munis are reaching 7% to 8% for residents in many states.

Here's the kicker: Valuations are so attractive that you don't need to be in the top bracket to benefit. Even middle-income investors can find value in municipal bonds, especially when investing through diversified funds that span the full yield curve.

At the shorter end, for a diversified ladder of one- to 10-year munis, the break-even tax rate is around 32%. But for funds with broader exposure — particularly in the intermediate range — the break-even threshold drops, making munis compelling even for those in lower tax brackets.

The break-even tax rate is the rate (federal income tax, the 3.8% Medicare tax and applicable state income tax) at which an investor is achieving the same after-tax return, whether they choose to invest in the taxable market (using the Bloomberg US Aggregate Bond Index (pay wall) as a proxy) or the municipal market (the Bloomberg Municipal Bond Index as a proxy).

The break-even tax rate is shown as a range, as New York, California and many other states have different tax rates based on income levels. Treasury and other U.S. government agency debt being exempt from state income tax is considered.

For California and New York, an additional state tax exemption for the municipal exposure is incorporated into the analysis, given the prevalence of New York and California state-specific municipal bond funds.

Other states assume a national exposure without state tax exemption benefits.

Municipal tax-equivalent yield is calculated using a 40.8% tax rate, which includes a 37.0% top federal marginal tax rate and a 3.8% net investment income tax to fund Medicare.

The California and New York tax-equivalent yield calculation includes the highest state income tax bracket in those states.

(Source: Vanguard calculations using Bloomberg data as of July 31, 2025. Past performance is not a guarantee of future returns.)

Higher income provides a buffer

Some investors remain wary of longer-duration bonds. The scars of 2022, when inflation and rate hikes battered bond prices, are still fresh. But today's yields are a different story. They're high enough to provide a cushion against moderate rate increases.

Think of it this way: If you're earning 4% to 5% in tax-exempt income, a modest rise in rates could dent prices, but the income you collect over a 12-month period can offset much of that decline.

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If you're investing through a mutual fund or ETF, professional managers can take advantage of the steep curve by selling bonds as they "roll down" the curve — capturing additional gains in addition to coupon income.

This dynamic — income plus roll-down — can help smooth returns and shorten recovery times even if rates rise. It's a powerful combination that makes longer-duration munis more resilient than many investors assume.

The sweet spot for munis

Where should investors focus? We believe the most attractive part of the muni market today lies in high-quality bonds with maturities in the 15- to 20-year range.

These bonds sit comfortably within range of intermediate-term strategies, which generally offer a favored balance between yield and duration risk. They avoid the extreme volatility of the longest bonds while still capturing much of the yield of the steeper part of the curve.

Of course, no investment is without risk, but with their current yields, strong fundamentals and income buffer, high-quality munis are the closest thing we've seen to that $20-on-the-sidewalk scenario in a decade.

For investors willing to look beyond the short end of the curve, the opportunity is real — and it might not last forever.

If you're considering investing in munis, you should be aware that although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares. For some investors, a portion of the fund's income may be subject to state and local taxes, as well as to the federal alternative minimum tax.

Also, bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline.

All investments are subject to risk, including the possible loss of the money you invest.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The 2025 stock market has been a rollercoaster with more uncertainty on the horizon. Rebalancing your portfolio to include more fixed-income assets, which pay ongoing interest or dividends, can help reduce losses during a future downturn. “If you held on through the spring and into the summer rebound, you likely haven’t lost money and have a freebie to revisit,” says David Rosenstrock, a financial planner with Wharton Wealth Planning in New York City.

With fixed-income investments, such as bonds, you put up your money for a specified period and receive interest income during that time, just like making a loan. They performed poorly for over a decade following the 2008 financial market crash. Market interest rates were near zero, and these assets paid little.

Today, interest rates are closer to their historical average, so fixed-income assets, which also include CDs, money-market funds and some ETFs and mutual funds, provide a more reasonable return along with safety.

So find the right balance for you. That depends on your goals and, most importantly, your risk tolerance. The rule of 120 suggests that you subtract your age from 120. That’s the highest percentage you should have in stocks, with the rest in either cash or fixed-income. Another strategy is to have at least five years of living expenses in cash and fixed-income, so you have plenty of time to wait out stock market downturns in retirement.

“If you were losing sleep during all that market volatility, it likely says you’re taking on too much risk and should move into more fixed-income,” says Rosenstrock.

Here are some types of fixed-income investments, offering different balances between return and risk:

U.S. Treasuries

The U.S. government issues Treasuries in the forms of bills, notes and bonds to borrow money from investors.

The Treasury return is often referred to as the risk-free rate, showing the confidence investors feel in the U.S. government to make promised payments.

U.S. Treasuries are available for periods running from four weeks to 30 years. Treasury bills (a.k.a. T-Bills) mature in a year or less; T-Notes mature in two to 10 years, and T-Bonds mature in 20 or 30 years. Currently, Treasuries are paying 4% to 5% a year, and the interest payouts are taxable.

Important: The value of Treasuries can fluctuate, depending on current interest rates. Hold to maturity, and you get all of your principal back. But if you cash out early, the value is what the market says that day. If rates have gone up since your initial purchase, the value of your Treasury will fall. If rates fall, value goes up.

Since interest rate trends are unpredictable, one strategy is to spread your money over Treasuries maturing at different times, known as a ladder. That way, if rates fall after your initial purchase, you have some cash still locked in at higher rates, and if rates rise, your short-term Treasuries will mature sooner, returning money to reinvest at higher rates.

TIPS and STRIPS

There are variations of U.S. Treasuries. Treasury Inflation Protected Securities (TIPS) allow you to earn more interest should inflation go up, but less if inflation falls. The amount you get back at maturity can also be higher than you paid when inflation is high.

Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) do not pay interest income. Instead, you pay a smaller amount upfront, and your return comes from a larger payout at maturity. For example, you pay $6,755 for a STRIP that guarantees a $10,000 repayment in 10 years, roughly a 4% annual return.

One drawback, though, is that you owe income tax on the assumed return each year, even though you don’t receive the ongoing interest income. To avoid tax on this phantom income, keep STRIPS in a tax-deferred retirement account.

Municipal bonds

State and local governments issue municipal bonds to raise money. They are a little riskier than Treasuries, as there is a greater chance that these governments might run into financial trouble and fail to make their promised interest payments.

In exchange, municipal bonds can earn a higher after-tax return on your money because municipal bond interest is exempt from federal taxes (although not from all state income taxes). If you are in the 24% tax bracket, the tax-free payout on a 4% muni-bond is equivalent to a Treasury paying 5.26%.

Corporate bonds

Companies also issue bonds. The safety of the bond depends on the organization behind it. Independent agencies, such as Moody’s and Fitch assign companies a credit rating. Companies with a BBB- or higher credit rating are considered investment-grade bonds. The agencies deem these bonds as more likely to pay their creditors as promised, with the higher the score, the better the company’s creditworthiness. Investment-grade bond yields are averaging a little over 5% on the Bloomberg U.S. Corporate Bond Index.

On the other hand, corporate bonds with a rating of BB+ or lower are known as high-yield or junk bonds. These companies are more likely to miss payments, and if the company encounters serious financial trouble, it may not repay your principal. In exchange, they pay much higher interest rates. The S&P U.S. High Yield Corporate Bond Index earned an 8.89% annual return over the last three years.

“Are junk bonds risky? You bet, but so is the stock market," says Robert Tipp, head of global bonds at PGIM, Prudential’s investment management division. He notes that while losses in junk bonds are possible, a diversified portfolio with bonds from different issuers has historically experienced much less severe annual losses than the stock market.

Preferred stock

Preferred stock is a hybrid of stocks and bonds. Preferred stock shares receive fixed dividend payments, ranging from 6% to 9% a year. However, those payments are not promised by the company, unlike bond interest. If a company encounters financial difficulties, it could temporarily suspend payments. Depending on the terms, the company may catch up on missed payments later or it may not.

On the other hand, preferred stockholders take priority over common shareholders in receiving dividend payments. However, if the company does well, the preferred stock shares do not appreciate in value like common equity on the stock market.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

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Editor's note: This is part three of a four-part series exploring financial fact vs fiction. Each article examines five of the top 20 most common financial myths — from investments to retirement and Social Security to life insurance. Parts one and two — This Roth Conversion Myth Could Cost You and Why Your 'Magic Number' Isn't Actually Magical — covered the first 10.

Have you ever heard one of your relatives or friends opine about their favorite investment or way to reduce income taxes and wonder to yourself: "Is this really true?"

This series of 20 most-common financial myths might help you sort out the fact from fiction, or "urban legends," when it comes to investing and consumer finance.

Without further ado, here are myths 11-15:

11. Adding bonds to a stock-oriented portfolio protects my downside during market sell-offs.

At times, bonds do move inversely with stocks, so when stocks are selling off, bonds may rise in value to cushion overall returns in a balanced portfolio.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

But that isn't always the case, and, in fact, stocks and bonds have moved in the same direction many times recently, which is what practitioners refer to as positive correlation.

This occurred in the 2022 calendar year, which was damaging to the traditional 60/40 stock/bond portfolio because the S&P 500 Index experienced an 18.1% loss, and the Bloomberg US Aggregate Bond Index lost 13.0%, according to Callan Institute's Periodic Table of Investment Returns.

Some economists and market watchers believe the higher-rate, higher-inflation regime we're currently in may produce more periods of positive correlation between stocks and bonds, similar to the 1970s-'80s period.

Another related misconception is that all bonds move together in the same direction. That's not true either. In 2008, the 10-year U.S. Treasury bond return was +20.1%, while the Bloomberg US High Yield Corporate Bond index return was -26.2%, a difference of 46.3 percentage points in a single year!

It's important to understand why this can happen. During 2008, a debt crisis unfolded, kicking off the Global Financial Crisis, or GFC. Investors, scared by how quickly the economy was deteriorating, bought U.S. Treasuries as a safe haven, the so-called flight-to-safety trade.

High-yield bonds, aka junk bonds, went the opposite direction because during recessions, highly leveraged companies have difficulty making their debt payments, and high-yield bond defaults tend to rise.

12. When I die, my assets will be distributed to the heirs I list in my statutory will.

Although some assets can indeed be distributed according to the statutory will, many assets do not pass by will but, rather, pass according to beneficiary designations, right of survivorship or terms of a trust.

That's why it's critical for investors to understand how each asset they own will pass to heirs when they die and make sure their beneficiary statements, trusts and similar designations are up to date.

Assets requiring a beneficiary designation will be distributed to the primary or contingent beneficiaries designated on the most recently signed and filed beneficiary form.

This category includes life insurance policies, annuities, traditional and Roth IRAs, SEP and SIMPLE plans, 401(k) plans, 403(b) plans, 457 plans and other retirement or pension plans.

Assets in individual (nonretirement) brokerage or bank accounts do not generally have beneficiary designations, but they can if the owner adds a TOD (transfer on death) or POD (pay on death), respectively, to those accounts.

Revocable living trusts (RLTs) are used by many families to own assets such as real estate to keep those assets from going through probate, which can be costly, public and slow.

If a family has an RLT that owns their primary home, a vacation home, a couple of rental properties, an RV, a boat and their business, all these assets will be distributed according to the terms of the trust when the trustee passes away.

Many types of irrevocable trusts are used in estate planning also, generally providing their own distribution instructions for how assets owned by the trust are to be distributed when the trustee dies.

Finally, many assets are owned jointly by a married couple or partners, as either joint tenancy with right of survivorship (JTWROS) or joint tenants in common (JTIC).

These forms of ownership dictate what happens to the asset on the death of a joint tenant/owner, namely that the surviving tenant/owner now owns 100% of the asset after their spouse or partner's passing.

So be careful — signing and updating your will may not control distribution of many or even most of your assets when you die.

13. Now that inflation has dropped significantly, prices are coming back down to where they were in early 2021, before the inflation spike.

Prior to 2021, the inflation rate was running at only 1% to 2% annually for over a decade, making gradual price increases almost invisible to many consumers.

But as 2021 and 2022 played out, inflation spiked to 9.1% by mid-2022, causing prices for groceries, clothes, appliances, lumber, cars, food and houses to rise significantly.

Most consumers noticed these price increases, which resulted in costs for many items U.S. consumers purchase regularly jumping by about 30% within a short two- to three-year period.

By mid-2023, the inflation spike had receded back to 3% or so, with inflation declining almost as rapidly as it had risen.

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As 2023 came to an end, many consumers were expecting prices at the grocery store and restaurants and top vacation destinations to return to their early-2021 levels, but they didn't.

That's because the inflation rate refers to the rate of change of prices, not the absolute level of prices themselves. An annual inflation rate of 3%, for example, means prices increased by an average rate of 3% during the year, so by year's end, prices are 3% higher than they were at the beginning of the year.

If inflation then dropped to 0% the following year, price changes (i.e., inflation rates) are now flat for the second year, but still 3% higher than they were two years prior.

For prices to drop back to their starting point, the economy would need to see price deflation, meaning a negative rate of inflation (i.e., a reduction of the price level).

Barring deflation, which is unlikely in the next year or two, U.S. consumers are unfortunately stuck with the higher prices associated with the 2021-'22 inflation spike.

That says nothing of the potential inflationary aspect of higher import taxes, aka tariffs, which threaten to raise prices consumers pay by increasing the costs paid on imported goods.

14. The U.S. imports most of its oil from the Middle East (OPEC countries).

In fact, Canada and Mexico are the top sources of U.S. crude oil imports, accounting for about 75% of all oil imported to the U.S. each year.

Saudi Arabia is No. 3 and Iraq No. 7, providing roughly 7.7% of the annual imported total, according to Reuters, based on U.S. Energy Information Administration data.

In 2024, the U.S. produced more crude oil than any other country — about 13.3 million barrels per day. But the type of crude oil the U.S. produces isn't always usable by its own refineries, which is why the U.S. still imports part of its annual supply of oil while, at the same time, exporting some of its own nationally produced crude oil to other countries.

U.S. refiners prefer use of heavier crude oil, but some of the oil produced in the U.S. is light, sweet crude oil, which is generally not compatible with U.S. refining capabilities.

Interestingly, the U.S. is also the world's largest exporter of liquified natural gas (LNG), sending nearly 93 million metric tons to other countries in 2024.

15. Owning real estate is the 'best' way to build wealth because property values increase significantly over time.

While it's true that real estate can be a good investment and does enjoy certain tax advantages, from a pure rate-of-return perspective, it's not always the clear leader as compared to other investments (e.g., U.S. stocks, private equity).

Using the S&P CoreLogic Case-Shiller U.S. National Home Price Index as a proxy for residential home price appreciation reveals an average gain of +4.4% per year over the past 38 years, according to the Federal Reserve Bank of St. Louis.

Drilling down to individual cities, the Case-Shiller Home Price Indexes show the dispersion across various geographies, with average New York City home prices rising +3.6% annually, Chicago +3.7%, Boston +4.0%, Los Angeles +5.3% and San Francisco +5.5%.

Over that same 38-year period, U.S. stock prices have risen an average of +10.5% a year, roughly double the home appreciation rate of Los Angeles, one of the fastest home price growth markets during this period.

To compare private equity and venture capital returns, we employed Cambridge Associates' U.S. Private Equity (PE) and Venture Capital (VC) indexes spanning the past 25 years and compared those returns to the various Case-Shiller Home Price Indexes covering this same 25-year period.

The Cambridge Associates indexes show average annualized PE returns of +12.7% and VC returns of +12.0%. Using Case-Shiller Home Price Indexes over this same period resulted in average annualized home price appreciation of +4.9% nationally — +4.8% for NYC, +3.1% for Chicago, +5.1% for Boston, +6.2% for Los Angeles and +5.3% for San Francisco.

Similar to U.S. stocks, PE and VC returns roughly doubled the home price appreciation rate of Los Angeles and more than doubled the rates of other cities and the national average.

Our point here isn't that real estate is a "bad" investment — it's not — but that home values may not keep up with compound annual growth rates of stocks and PE/VC investments.

Diversification works, and blending real estate with stocks, both public and private, can be a solid, productive and responsible investment strategy for many families.

Besides, we all have to live somewhere, so why not own an appreciating asset that also provides shelter and security for your family?

While some basic principles ring true forever, many "urban legends" of finance don't; in fact, they never did. It's a good idea to research truisms to verify just how "true" they really are. Otherwise, you could be making costly mistakes.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The Federal Reserve will keep short-term interest rates unchanged when it concludes its next meeting, experts say, as solid economic growth, moderating inflation and a "low-hire, low-fire" labor market support current policy.

Of more interest is how Fed Chair Jerome Powell handles the press conference following the release of the central bank's policy statement. The Fed's independence has come under question, and Powell is set to preside over just two more meetings before his term as Fed chief ends on May 15. While Powell could remain on the Fed board for the remainder of his full term, he could also choose to step aside entirely.

As for the state of the economy, fourth-quarter gross domestic product (GDP) is tracking at a strong growth rate of 5.4%, according to the Federal Reserve Bank of Atlanta's GDPNow model.

Meanwhile, the jobs market remains sluggish but steady. As for inflation, while it's still above the Fed's long-term target, recent readings have come in better than expected. Fears of a tariff-driven surge have thus far proven unfounded.

Matthew Luzzetti, chief U.S. economist at Deutsche Bank, suggests Powell’s press conference could veer into "non-economic issues," such as current threats to the Fed's independence. On the "fundamental" side, Luzzetti expects Powell to describe policy as "well positioned," as it is plausible to argue that rates are currently neutral.

"Powell might also sound somewhat more sanguine on the labor market, while still emphasizing downside risks," Luzzetti adds.

As of this writing, market participants expect the Fed's rate-setting committee, the Federal Open Market Committee (FOMC), to stand pat on the federal funds rate.

Indeed, as of January 26, interest rate traders assigned a 97% probability to the FOMC keeping the target rate steady at 3.5% to 3.75%, according to CME Group's FedWatch.

With the Fed set to leave rates unchanged at an increasingly complex time, we turned to economists, strategists and other experts for their thoughts on monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Fed rate decision: what the experts say

"After three straight rate cuts last year, the Federal Reserve is widely expected to keep interest rates unchanged at the next meeting. We may see another dissent (in favor of an additional cut) from Governor Miran before his term ends on January 31, but the real focus will be on Chair Powell's press conference. Investors want to know whether this will simply be a one-meeting 'pause' or the beginning of a longer hold. Right now, the economy still looks surprisingly sturdy." – Larry Adam, chief investment officer at Raymond James

"We expect the Fed to hold rates steady and present a somewhat more upbeat view about the economy through the policy statement and Chair Powell's press conference. The statement is likely to upgrade the growth assessment to 'solid,' note tentative evidence that unemployment has stabilized, and hint at an improving balance of risks to the outlook." – Matthew Luzzetti, chief U.S. economist at Deutsche Bank

"Markets are now not really expecting a Fed rate cut until June, or the first meeting after Jay Powell has left the Chair. We remain a bit more dovish than the market, expecting three quarter-point trims this year. True, real GDP growth expectations are being lifted, but it's coming from better productivity, and the job market remains sluggish while core inflation is stable to lower." – Douglas Porter, chief economist at BMO Capital Markets

"We don't expect to learn a lot at the January FOMC meeting. The Fed is on hold but remains data dependent. The balance of risks around the two mandates hasn't changed much since December. Chair Powell's press conference might be dominated by questions about politics rather than policy. On the latter, however, market pricing creates risks of a dovish surprise." – Aditya Bhave, U.S. economist at BofA Securities

"We expect no policy change in the January meeting. Our base case anticipates 25 to 50 bps of additional easing this year, moving towards neutral and generally supporting our constructive economic and market outlook." – Lauren Goodwin, chief market strategist at New York Life Investments

"While no change in interest rates is expected, markets will be highly attentive to the tone of the statement and Chair Powell's press conference. Any adjustment in how the Fed characterises inflation, labour market conditions or downside risks to growth could quickly influence rate-cut expectations. A message that reinforces patience and acknowledges cooling momentum would likely support equities and pressure the dollar, while a more cautious or hawkish tilt could revive volatility across risk assets." – Daniela Hathorn, senior market analyst at Capital.com

"We expect the Federal Reserve to hold rates steady at the January FOMC meeting, following three consecutive rate cuts in 2025, as policymakers take time to assess the impact of past easing. Assuming inflation continues to trend lower and growth remains resilient, we see room for moderate rate cuts in 2026." – Gargi Chaudhuri, chief investment and portfolio strategist at BlackRock

"The FOMC is widely expected to leave the fed funds rate unchanged at its January meeting. We expect the post meeting statement and press conference to signal maximum flexibility as the Committee strives to keep its options open. Our forecast remains for two 25 bps rate cuts at the March and June meetings, but the risks to our forecast look increasingly skewed toward later and possibly less easing this year." – Sarah House, senior economist at Wells Fargo

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Rumors of the death of the 60-40 portfolio — that old standby allocation of 60% stocks and 40% fixed-income investments — are premature. A portfolio that held 60% of its assets in U.S. stocks and 40% in bonds has performed well recently, with returns of 16% and 18%, respectively, in 2023 and 2024.

“Quite the contrary — the 60-40 is not dead,” says Paisley Nardini, a portfolio manager and asset allocation strategist with Simplify Asset Management. “If we say it’s dead, we’d also have to say portfolio diversification is dead, and diversification is more important than ever these days.”

In the recent stock selloff, for instance, a 60-40 portfolio would have lost 4% — less than the 9% decline in the S&P 500 index from its peak through the end of April.

But many 60-40 investors are still nursing bruises from the beating they received in 2022. That calendar year, a balanced portfolio strategy — which had succeeded for decades as interest rates declined and bonds thrived — got crushed as rising interest rates sent stocks and bonds tumbling in tandem.

That’s rare, though. The last year stocks and bonds both fell was 1969. Even so, the wounds fueled a horde of 60-40 doubters, who argued that the portfolio had gotten riskier. And that spawned a variety of strategies to tweak the 60-40 formula.

Most fixes, but not all, involve adding so-called alternative investments to the portfolio. These investment strategies offer investors a way to diversify beyond stocks and bonds.

“A 60-40 portfolio is a two-legged stool,” says Nardini. Adding alternatives — a third leg — can provide increased stability, especially now with the stock market taking a breather and sticky inflation weighing on the bond market.

However alternative strategies come with several caveats. There are numerous approaches, and many are complex. The broad group includes strategies that invest in private stock or bond markets, hedge market returns, or invest in real assets, such as real estate, commodities and even digital currencies. These approaches don’t always behave in predictable ways, and some are best used as tactical tilts rather than long-term holdings.

These days, many mutual funds and exchange-traded funds employ alternative strategies, making them easy for do-it-yourself investors to buy and sell. But they’re pricey, charging an average expense ratio of 1.70% (though generally, alternative ETFs charge less). For context, the typical annual fee of U.S. stock funds and ETFs is 0.91%.

A third leg for the stool. If you are thinking of adding alternatives to your portfolio, focus on the goal you want them to accomplish, and invest accordingly.

“At the very least, you want the third leg to behave differently from stocks and bonds. Otherwise, why are you taking on the risk?” says Nardini.

To help you meet your objectives, we’ve highlighted below some easy ways to add an alternative strategy to your balanced portfolio. Prices, returns and other data are as of April 30.

Enhance income

Real estate investment trusts, or REITs, are one alternative asset class you can hold forever, says Jonathan Lee, a senior portfolio manager at U.S. Bank Private Wealth Management in St. Louis. They pay big dividends — tax rules require REITs to pay out a minimum of 90% of taxable income — and there’s the promise of share price gains, too.

What’s more, REITs are considered good inflation hedges because property values and rents tend to move up with rising prices, says Mayukh Poddar, a senior portfolio manager at Altfest Personal Wealth Management in New York City.

What they don’t offer is lower volatility. Over the past decade, REIT funds have been slightly more volatile than the S&P 500.

Baron Real Estate Income (BRIFX) boasts below-average volatility and an annualized three-year record that beat 93% of its peers. It charges a 1.05% annual expense ratio. The fees for ETFs Real Estate Select Sector SPDR (XLRE) and Invesco S&P 500 Equal Weight Real Estate (RSPR) are considerably lower. Both index-based funds beat more than 60% of their real-estate fund peers over the past three years.

Infrastructure funds are also prized for generating stable income. These funds invest in companies that own, operate, or are involved in the development and service of infrastructure-related assets, many of which provide an attractive income yield backed by secure and sustainable cash-flow streams. Think airports, highways, railroads, utilities and electricity storage.

According to Nuveen chief investment officer Saira Malik, global infrastructure stocks have historically provided a buffer to inflation, too.

Fidelity Infrastructure (FNSTX) is an actively managed fund with a three-year annualized return of 5.2%, which beat 71% of its peers. It yields 1.3%. iShares Global Infrastructure ETF (IGF) yields 2.8%, and its annualized return of 8.1% over the past three years beat 82% of its peers. Both funds held up better than the S&P 500 in the recent selloff and in 2022.

Boost diversification

Managed futures strategies “have the lowest correlation to stocks and bonds,” says Nardini. In a managed futures fund, a professional builds a diversified portfolio of futures contracts in a variety of assets — bonds, stocks, commodities and foreign currencies.

These strategies shine when stocks and bonds are faltering. In 2022, the typical managed futures fund gained 24%. But they dim when stocks soar. In 2023 and 2024, for instance, the typical managed futures fund lost ground or was flat.

And if long-term returns and volatility are any clue, they’re best used during periods when you’re pessimistic about the market’s trajectory and you want to provide your stock portfolio with a cushion against downturns.

Over the past decade, the typical managed futures fund posted a slim, 1.8% annualized return. That just barely beat the Bloomberg U.S. Aggregate Bond index, and it was twice as volatile.

Simplify Managed Futures Strategy (CTA) uses a rules-based strategy to identify price trends and invest in futures contracts in stocks, bonds, currencies and commodities. Over the past three years, the fund’s 9.6% annualized return ranked in the top 1% of its peers. And during the recent selloff in stocks, Simplify Managed Futures Strategy ETF lost 6% (compared with the S&P 500’s 9% drop).

Gold also tends to move up when stocks fall. For instance, iShares Gold Trust (IAU) gained 12.4% during the recent stock selloff. And in 2022, the ETF was essentially flat, with a 0.6% loss, while the S&P 500 lost 18%.

Lower volatility

Alternatives can help a 60-40 portfolio during periods of “big spikes in volatility,” says Megan Horneman, chief investment officer at Verdence Capital Advisors. To hedge stock risk — which accounts for about 90% of the volatility in a 60-40 portfolio — she suggests adding a market-neutral fund. These funds vary in approach, but the common thread is they move to their own beat, independent of the stock market. Low volatility and steady (albeit modest) returns are common characteristics.

One of the steadiest market-neutral strategies is merger arbitrage, which involves buying stocks in soon-to-be-acquired companies after a deal has been announced. The fund earns a profit on the difference between the post-announcement price and the price when the deal closes.

Not all transactions are consummated, however, and longtime managers Roy Behren and Michael Shannon at the Merger Fund (MERFX) have proved that they have a knack for identifying deals that do. Over the past three years, the fund’s 3.9% annualized return beat 67% of its peers. In 2022, the fund was flat, with a 0.7% return. You can buy shares without a load or a transaction fee at Fidelity and Schwab.

Tweak the formula without adding anything new

There are ways to adjust your 60-40 portfolio without adding alternatives.

Rethink your core bond holdings, for a start. The Bloomberg U.S. Aggregate Bond index has a current duration (a measure of interest-rate sensitivity) of a little less than six years. Bond prices and interest rates move in opposite directions, so a duration of six years implies that if interest rates rise by one percentage point, a fund’s net asset value will fall by 6%.

A tilt toward short-term debt (with maturities of one to three years) in your bond holdings can lower the overall interest rate risk of your portfolio and potentially reduce volatility, too, according to a report from Intrepid Capital, an investment management firm in Jacksonville Beach, Fla.

Plus, these days, you don’t have to sacrifice much in the way of yield, despite a recent rise in long-term yields. Recently a one-year government note yielded 3.9% and a 10-year bond yielded 4.2%.

Our favorite short-term bond mutual and exchange-traded funds are Vanguard Short-Term Investment-Grade (VFSTX) and iShares Short Duration Bond Active (NEAR). Both funds hold a mix of corporate and government debt, boast short durations, and have better than 4.5% yields.

You can also boost diversification in your 60-40 portfolio simply by focusing on neglected parts of the market, such as health care and international stocks. Both kinds of shares outperformed the S&P 500 from the start of 2025 through March.

“Diversification has been the enemy of portfolios for the past 10 to 15 years,” says Simplify Asset Management's Nardini, “but we see a tailwind in the future for diversifiers in a portfolio.”

Another strategy is to adjust the ratio of stocks and bonds within the portfolio. Jim Paulsen, a longtime stock strategist who writes about the economy and financial markets in Paulsen Perspectives, recently studied the performance of a 60-40 portfolio against a 100% stock portfolio and found that when the 10-year Treasury yield hovers around 4% — though it has been on the rise — a 60-40 portfolio has delivered returns that hewed close to an all-stock portfolio, with lower volatility.

But when the 10-year yield falls below 4%, investors may want to tilt more toward stocks — say, a split of 70% stocks and 30% bonds — because historically, lower yields have generally translated into paltry bond returns. Conversely, if the 10-year yield rises well above the 4% mark — say, in the 6% range, as it did in the ’00s — an even split between stocks and bonds may be in order.

Paulsen admits this approach requires some work, and depending on your tolerance for risk, it may not be appropriate for you. (It also may work best in a tax-deferred account to avoid capital gains taxes as you adjust your portfolio.) But “it may prove profitable,” too, he says.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Prices and other data are as of May, 2025.

You’ve got some money in bond funds. You did some shopping, and your fund is throwing off more than 4% in interest. Pretty good, considering inflation ran at 2.4% the past 12 months.

Now you talk to your accountant, who reminds you that you’re in the 32% tax bracket. Oops. Your 4% yield is now 2.7%. Back out inflation and you’re earning just 0.3%. On a $10,000 investment, that’s a return after taxes and inflation of $30. Take your best friend to dinner at McDonald’s.

You can’t do much about inflation, but you can do something about taxes — with municipal bonds. “For years, the only reason to own bonds was diversification,” says Jim Murphy, lead portfolio manager for municipal bonds at T. Rowe Price. But now, they’re good inflation insurance. Some high-yield municipal bond funds and ETFs yield 5% or more. If you’re in the 32% tax bracket, you’d need your taxable fund to yield 7.4% to get the same return after taxes.

Pretty tasty, right? Just remember that your high muni yield comes with a side order of risk.

Muni bonds: The risks

Muni bonds are issued by states, cities and municipal organizations, and their interest is exempt from federal income taxes. If you own a muni bond issued by your state, interest is free from federal, state and local taxes.

The main risk from any high-yield bond is that the issuer defaults and can’t pay interest or repay the principal at maturity. High-yield muni funds pick from bonds on the lower end of credit ratings, which means they're rated lower than Baa (by Moody's) or BBB (by S&P and Fitch). Municipal defaults are rare — about 0.8% since 1970, according to Fidelity Investments. Current bankruptcy law doesn’t allow states to go bankrupt, although cities and other municipal issuers can.

But the price of a muni bond can go down if buyers begin to doubt the issuer's solvency — for example, if companies such as Moody’s downgrade their credit rating. Because just 5% of the total municipal bond market is considered high yield, price drops can be rapid.

Puerto Rico’s bonds were a classic example of what can go wrong. The bonds were highly popular with muni funds because interest from them is tax-exempt in every state. In 2015, prices on Puerto Rico’s bonds fell about 12%, to 68.5 cents on the dollar, on the day the island’s governor declared the debt “not payable.”

All bonds face interest rate risk. Bond prices fall when interest rates rise, and vice versa. If you own an individual bond and hold it to maturity, you don’t have to worry about rising or falling rates. If you own bonds through a fund or ETF, however, you can lose money when rates rise. (Conversely, you can gain if you sell after rates fall).

A muni fund manager has two ways to increase a fund’s yield. She can buy bonds with long maturities, or she can buy bonds with a higher default rate; both strategies tend to make the fund riskier. For example, iShares High Yield Muni Active ETF (HIMU) currently yields just over 5%. The fund sometimes holds as much as half of its portfolio in unrated bonds, according to Morningstar, and it tends to buy longer-term bonds than its peers. Capital Group Municipal High-Income ETF (CGHM) tends to buy shorter-term, higher-quality bonds. Its current yield is just under 4.5%.

If you want to see how munis fare in a rising rate environment, look at how they performed in 2022, when rates rose sharply. The Vanguard Total Bond Market ETF (BND) fell 13%. IShares National Muni Bond ETF (MUB), the largest muni bond ETF, fell over 7%, while First Trust Municipal High Income (FMHI), the largest high-yield muni bond ETF, fell almost 15%.

Municipal bonds: What to buy

Stay away from high-yield munis with high expense ratios. Every dollar you give to your fund company is one you won’t have when you need it.

Two muni ETFs that have expenses below 0.5% and yields above 4%: iShares High Yield Muni Active ETF (HIMU) and SPDR Nuveen Bloomberg High Yield Municipal Bond ETF (HYMB). Two garden-variety mutual funds that fit the bill: Eaton Vance High Yield Municipal (EWHYX) and T. Rowe Price Intermediate Term High Yield (PRIHX).

Typically, the best time to buy muni funds is when the yield of a 10-year high-grade muni bond is about 85% of that of a Treasury security with a similar term. By that measure, munis are as cheap as they have been since the economic recovery began in 2022, according to Nuveen.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

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One thing investing teaches you is to expect surprises. Coronavirus epidemic? Surprise! Trade wars? Surprise!

Another thing you can learn from investing: Wall Street just hates surprises. When the unexpected arises, the markets can skitter up and down for days and weeks. On particularly volatile days, you could get seasick just watching the market’s moves.

Volatile times don’t mean that the world is ending or that you’ll soon be chipping flints in a cave. Is it easy to invest when the world seems upside down? No. But you’ll panic a lot less if you stick with basic investment principles: Know your goals, be honest about your tolerance for risk, and find ways to soften the blow to your portfolio before investment surprises happen.

Have a plan

First things first. When markets are going wild, it’s sometimes hard to keep in mind that you’re saving for a goal. If you have a plan for your investments, take a deep breath and review it.

If you don’t have a plan for your investments, it’s a good time to make one. What are you going to spend your savings on, and when are you going to spend it? Make a list of your savings goals, estimate how much they will cost, and know when you want to reach them.

Having a plan helps remind you that lousy market news may offer some positives. It may also calm your nerves a bit, especially if your goals are a few years off. Markets generally recover, and with enough time, your portfolio can take a licking and keep on ticking.

Garden-variety bear markets push stock prices down an average 27% and recover their losses in 13 months, says Sam Stovall, chief investment officer at research firm CFRA. Mega meltdowns, such as the 2007–09 bear market, claw an average 51% from stocks and take nearly five years to recover. Thankfully, there have only been three mega bears since the end of World War II, Stovall says.

This is a good time to ask yourself whether you’re really as tolerant of risk as you thought you were when the bulls were running on Wall Street. You may have thought of yourself as a bold investor, but that’s a harder stance to maintain when stocks are falling.

Check in with the mix of stocks, bonds and cash in your portfolio — your asset allocation — to make sure it’s really right for you. The right blend is one that you can stick with through volatile times.

You’re probably not going to beat the S&P 500 index in a rip-snorting bull market, because you’re not fully invested in the stock market.

On the other hand, you might do less badly in a bear market and be more likely to meet your goal.

“Invest on the plan, not on the market,” says Brad Klontz, a financial psychologist. “If your portfolio went up 8% while the S&P 500 was up 12%, you should be 100% okay with that,” Klontz says.

Don’t have an asset-allocation plan? You can create one yourself, based on an honest evaluation of your goals and risk tolerance. You can also use online programs from your brokerage house or get help from a financial planner.

Otherwise, simply invest your money in a target-date fund, which orients a mix of stocks, bonds and cash toward when you plan to tap your investments and shifts the blend appropriately over time.

A playbook for young investors

If you’re young and retirement is a distant dream, you can be fairly confident in a portfolio with 70% or more in stocks or stock funds. You have time to make up bear market losses. Plus, you’ll be adding to your savings over many more years.

Over the long term, stocks have outperformed cash and bonds. In the 88 10-year periods since 1927, the U.S. stock market has had positive performance 94% of the time, says Mark Bass, a financial planner with Pennington, Bass & Associates in Lubbock, Texas. “And that metric is 100% of the time for 20-year periods,” he adds.

Remember, too, that if you’re investing in the stock market through a 401(k) savings plan with an employer match, you have two bear-beating advantages.

First of all, you’ll be adding a set amount to your portfolio every payday. That means you’ll be buying more shares when prices decline and fewer when they soar.

The technique, known as dollar-cost averaging, tends to result in a lower average cost per share. Second, if your employer matches some or all of your contributions, you’ll instantly make up for some of your losses. Free money is rare, and it’s a good thing.

A warning: Don’t simply invest in the hottest of hot funds, despite your young age. Wall Street is littered with golden funds that suddenly turned to lead. Your core stock holding should probably be a plain-vanilla, low-cost S&P 500 index fund.

You’ll own not only some of the hottest stocks in the world but also some dull, dividend-paying stocks as well. And that’s okay: Dividends have accounted for 37% of the S&P 500’s total return over time.

Tips for seasoned investors

If you have fewer than 15 years before retirement, then you’ll probably want to mix more bonds into your portfolio. Bonds can provide ballast because most times they rally when stocks fall.

The stock market tends to be optimistic; bonds are only happy when it rains. When the economy slows, interest rates fall, and though that lowers yields, it boosts the price of bonds. (Bond prices and interest rates move in opposite directions.)

The classic portfolio mix is 40% bonds and 60% stocks. To add even more stability to your portfolio, you can substitute some bonds with cash — money market funds, Treasury bills and the like. Just be prepared for lower returns.

Be ready, too, to rebalance your portfolio periodically to stay on target and keep risk at bay.

For example, let’s say you want to have 60% of your portfolio in stocks and 40% in bonds, and after a year you have 70% in stocks and 30% in bonds. To get back to a 60-40 mix you must sell some of your stocks and reinvest the proceeds in bonds.

It’s a good strategy even in a down market, says Bill Nygren, portfolio manager of Oakmark fund.

“We would encourage people to look at how the market has moved their allocation and rebalance back to what their target was. I think that is a very healthy way to reduce risk in the portfolio, and, more importantly, reduce the psychological risk that you get scared when the market falls,” he says.

How often should you rebalance? Every six to 12 months is what many planners recommend, though rebalancing after a sharp downturn is fine, too. It may help to set a trigger point: If the stock and bond allocation is off target by an amount you predetermine — more than five percentage points off, say, or seven or 10 — then it’s time to rebalance. Some 401(k) plans will rebalance for you at regular intervals, and some brokerages will also do the same (but you may have to opt in for these services).

Watch your withdrawals. If you’re already retired, be mindful of which type of account you draw from to maximize tax efficiency. Tap money in taxable brokerage accounts first, followed by traditional IRAs and other tax-deferred accounts. Roth IRAs and Roth 401(k)s come last. This strategy gives your tax-advantaged accounts more time to grow.

If you are just starting withdrawals in the middle of a market downturn or a bear market, you could be making matters worse. After all, if you withdraw 5% of your stock fund when it’s down 25%, your account is now down 30%. And to recover from a 30% loss, you’ll have to earn 43%.

Financial planners call this the problem of sequential returns. Over the past 30 years, large-company stocks have gained just over 10% a year, on average, according to Morningstar. But that figure doesn’t mean that the market advanced 10% or more each year. The 30-year return includes some really swell years, such as 2019, when the S&P 500 jumped 31.5%, as well as the monster 2007–09 bear market, the worst since the Great Depression.

To mitigate the sequence-of-returns risk, be sure to put aside money in cash so you can sleep at night during those years when the stock market is stinking up the place.

“It’s literally for when the other stuff is going wacky,” says Bass, the Texas financial planner. “For the people who are in withdrawal mode, depending on their temperament, we’ll keep anywhere from two to five years’ worth of withdrawals as their sleep-at-night money.”

What not to do

Don’t try to time the market. This advice applies to market bottoms as well as tops. For one thing, the stock market’s best and worst days are often just a week or two apart. Missing the 30 best days in the past 30 years shrinks the S&P 500’s average annual total return to 1.8% from 10.1%, according to Wells Fargo Advisors.

Don’t buy trendy new funds. Wall Street tends to trot out funds that suit the market at the moment — red-hot tech funds when technology stocks are on fire, and dull-as-dishwater bond funds when the stock market is in the doldrums.

“Wall Street sells what people are asking for,” says John Rekenthaler, former vice president of research at Morningstar.

That’s not necessarily what makes a good investment. And, because it can take a while to bring a new fund to market, the latest products may land just as an investment trend has ended.

Don’t be a hero. Sudden, sharp declines can make investing in stocks or funds more attractive. But most traders will warn you not to buy in a free-fall: “Don’t try to catch a falling knife” is an old trader’s adage. The market can always go lower. Consider placing a special buy order, called a limit order, for stocks or exchange-traded funds at 10% or 20% below where they are now. You can specify that the order is good until canceled. If the order is filled, congratulations. If it doesn’t fill, then the market hasn’t gone as badly as you thought it might.

Don’t peek too often. Resist the urge to constantly check your portfolio in troubled markets. It can lead you down a path to unfortunate decisions, such as selling at the worst time. It can also wreck your mood as you ponder how much more fun you could have had with the money you just lost.

A PRIMER ON VOLATILITY

Just how volatile are different investment types? Here’s a guide.

Cash: Low, low volatility

Short-term investments include bank certificates of deposit, short-dated Treasury securities and money market mutual funds. They come with little to no risk but also offer very low returns.

Three-month Treasury bills, for example, have returned just 2.5% annualized over the past 30 years. But if you need the money soon — say, to buy a car within the next two years — then cash is your friend. You don’t want the stock market to determine what kind of car you buy.

Bonds: Medium risk

Bonds are long-term IOUs issued by corporations, the government or municipal entities, such as cities and states. They are vulnerable to two different types of risk: credit risk and interest rate risk.

Credit risk is the chance a bond issuer will go bankrupt and can’t pay. The greater the borrower’s risk of bankruptcy, the higher the bond’s yield and, generally speaking, the greater the volatility, too.

Companies with a low risk of default, for instance, issue investment-grade bonds rated triple-A to triple-B. The typical yield on investment-grade corporate debt in late April was 5.2%. High-yield bonds, also known as junk bonds, are issued by firms with lower credit ratings — double B to triple C — because they are deemed to have a higher risk of default; recently these IOUs offered better than 7% yields. But high-yield debt tends to trade more in line with stocks, unlike other types of bonds.

Bonds also have interest rate risk. When interest rates fall, bond prices rise and vice versa. For instance, in 2022, when interest rates rose at an unprecedented rate, the Bloomberg U.S. Aggregate Bond index plunged 13%.

Stocks: High volatility

All stocks are volatile, but some are more so than others. Shares in large companies with dependable earnings and dividends are generally lower risk than shares of small start-up companies, for instance.

Investment style can impact volatility, too. Growth funds, for instance, which invest in stocks of companies with above-average earnings growth, tend to be more volatile than value funds, which focus on unloved stocks trading at a discount. Core or blend funds are in the middle in terms of volatility because they hold a mix of growth and value shares.

International stocks have been a bit riskier than domestic stocks, in part because they carry currency risk. A strong dollar tends to dent returns in overseas stocks; a weak dollar, by contrast, tends to buoy foreign shares.

Sector funds invest in slices of the stock market, such as utilities, banks or technology. These funds can enhance portfolio returns, at times. But compared with broadly diversified stock funds, they can be more volatile, too.

HOW RISKY IS MY INVESTMENT?

Statisticians use several risk measures, most of which are widely available. Here are four. All are based on past data points — they’re backward-looking — but they are generally regarded as an indication of future behavior.

Standard deviation

The most commonly used definition of volatility is standard deviation, which depicts how much the return of an investment has varied from its long-term average over a certain period of time. The higher the standard deviation, the more volatile the security has been.

For example, SPDR S&P 500 (SPY), an exchange-traded fund that tracks the S&P 500 index, has a standard deviation of 16.1 over the past five years, which means that over that period, the ETF’s return has bounced up and down from its average return by 16.1 percentage points.

By contrast, Vanguard Total Bond ETF (BND) boasts a far lower five-year standard deviation of 6.3.

Beta

Beta measures the increase or decrease in price of an individual investment (stock or fund) compared with the market as a whole. A fund with a beta of less than one means its price rises and falls less dramatically than the broad market. A beta of greater than one means the security’s price tends to be more volatile than the market.

Alpha

This metric basically measures a fund’s ability to outperform (or underperform) an appropriate index. A fund with an alpha of 2.0 means it beat its benchmark by 2%; an alpha of negative 3.0 means it lagged the bogey by 3%. Ideally, a fund would have a low beta (less than one) and a high alpha (greater than zero).

Sharpe ratio

Devised by Nobel laureate William Sharpe, the Sharpe ratio is a risk-adjusted return. It measures how much excess return an investment has delivered relative to its volatility. (The actual calculation is a little more complex, but this is the general gist.)

The higher the Sharpe ratio, the greater the investment’s reward for the risks it has taken — in other words, the better the fund’s risk-adjusted performance.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Inflation is the monster in the closet for many investors, and that's why Treasury inflation-protected securities (TIPS) are objects of great interest lately. The government-guaranteed bonds are designed to beat inflation year after year, so they provide a measure of portfolio protection against rising prices — but they are no panacea, and they take some figuring out.

Still, they may be worth a look, as the worry over rising prices is palpable these days. According to the University of Michigan's April consumer confidence survey, Americans believed that inflation would average 6.5% over the next 12 months. That's the highest reading since 1981, and it's well more than twice the 2.4% rise in the consumer price index (CPI), the government's main inflation gauge, over the previous 12 months.

The angst is understandable. The inflationary impact of the Trump administration's tariff policy is uncertain, and the scars from the 9% inflation rate reached in June 2022 haven't faded. Inflation tends to be sticky — that is, prices that go up often don't go down. Even though the rate of inflation has fallen since its peak, prices are still up a cumulative 24% since March 2020, according to the CPI.

It's no wonder funds that invest in TIPS have seen net inflows of $9.2 billion over the past 12 months, according to Morningstar, the Chicago mutual fund tracker. If you're worried about inflation, read on to see whether TIPS are right for your portfolio.

How TIPS work

The government issues 5-, 10- and 30-year TIPS, which pay a fixed rate on a principal that adjusts in line with changes in the CPI.

As an example, let's look at a recent Treasury issue of 10-year TIPS. The annual fixed interest rate is 2.125%, payable every six months — a rate that's about as appealing as last week's oatmeal. The real attraction of TIPS is that the principal value of your bond can go up (or down) according to changes in the CPI.

Let's say that the CPI increases 3% in the 12 months after issue. The Treasury will then add 3% to your bond’s principal, boosting a $1,000 bond to $1,030, for example, and your interest payment from $21.30 to $21.94. (This simplified example illustrates an annual rate, but remember, TIPS pay twice a year.)

TIPS funds gained an average 3.4% in 2024, making them one of the best-performing bond fund categories — which is also an indication of how awful the bond market was in general.

And that brings us to our first caveat: "They are still bonds," says Thomas Urano, chief investment officer at Sage Advisory Services. Despite all their anti-inflation merits, TIPS prices will go south when the bond market does, at least partway.

If you own individual TIPS to maturity, price fluctuations won't matter much. You'll get your interest and principal as promised. If you sell your TIPS before they mature, however, you'll get whatever the market will pay, which could be more or less than the current rate of inflation.

Consider the following TIPS tips before you buy:

Watch out for falling prices. If we enter a period of falling prices — deflation — then the Treasury would subtract that amount from your bond’s principal value. Deflation is unusual, but not unknown. The CPI went negative in 2009 and 2015. But even if the CPI deflates for the life of the bond, you're guaranteed your full initial principal at maturity.

Understand the real yield. The real, or inflation-adjusted, yield from TIPS is a gauge of future inflation expectations.

For example, if the 10-year TIPS yield is 2.13% and the 10-year Treasury note yield is 4.35%, then Wall Street is expecting an average 2.2% inflation rate over the next 10 years. The TIPS breakeven — the difference in nominal yields between TIPS and Treasury securities of comparable maturities — has ranged between 0.04% and 3.02% since 2023, so a 2.2% real yield is a relatively high return.

Be ready for Uncle Sam to take a cut. Your interest is subject to federal income taxes, though not state or local taxes.

But there’s a catch: You also owe tax on the inflation adjustment to your principal in the year you receive it — even though you don’t realize that income until the bond matures or you sell it. That makes TIPS in general, including TIPS funds, best used in a tax-deferred account.

How to buy TIPS

You can buy individual TIPS in $100 increments for free from the Treasury at Treasury Direct. You can also buy TIPS through your brokerage. Or you might prefer using mutual funds and exchange-traded funds.

Short-term funds invest in TIPS with maturities of five years or less, according to Morningstar. These funds tend to be less volatile than longer-term TIPS funds, says Chun Wang, portfolio manager at the Leuthold Group, a money management firm.

As with all funds, you should prefer those with low expenses — 0.70% or less. Consider T. Rowe Price U.S. Limited Duration TIPS Index (TLDTX). The fund, which charges a 0.21% fee, has outpaced its peers over the past 12 months with an 8.2% gain.

Also consider American Century Short Duration Inflation Protected Bond (APOIX), which charges 0.70% in management fees. The fund has beaten the average short-term TIPS fund over the past one- and five-year periods. (Returns, prices and other data are as of April 30.)

ETFs worth a look include iShares 0-5 Year TIPS Bond (STIP), which weighs in with a 0.03% expense ratio, and Vanguard Short-Term Inflation-Protected Securities (VTIP), which charges 0.03% a year. Both have beaten the average ETF in their category over the past three- and five-year periods.

TIPS funds with a longer-term orientation can be riskier than their short-term brethren.

"They are definitely more sensitive to interest rates," says Sam Millette, fund manager at Commonwealth, an investment advisory firm.

Specifically, these funds are likely to post a bigger loss than short-term TIPS funds during a period of rising interest rates. (Bond prices and interest rates move in opposite directions.) A TIPS interest payment will offset some, but not all, of the pain of rising interest rates. In 2022, for example, the average TIPS fund lost 9.0%.

Still, if you have a longer investing time horizon, then a longer-term TIPS fund is a good choice, says Millette. Schwab U.S. TIPS (SCHP), which tracks a Bloomberg U.S. TIPS index, invests in a full range of maturities. The portfolio recently had an effective maturity of 7.1 years and a duration of 6.4.

Duration is a measure of interest-rate sensitivity; a duration of 6 implies a 6% loss in net asset value if interest rates rise one percentage point. The ETF finished in the top half of its category for nine of the past 10 calendar years (the exception was 2022), and it charges an expense ratio of 0.03%.

Finally, don’t wait until the CPI has already soared to buy TIPS. Remember that TIPS are priced according to what Wall Street expects for inflation over time, not today’s inflation rate. Those who bought TIPS funds during the 2022 inflation spike took a big hit because of the higher interest rates that tend to follow such consumer price surges.

For that reason, says Sage Advisory’s Urano, "TIPS are not a cure-all."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Everyone knows I love bonds, and after the recent turmoil in so many other corners of finance, I trust you agree. Once again in 2025, bonds' dual mandate of timely, reliable income and risk mitigation is proving its value.

Hence my segue into an assessment of the various sectors heading into summer. Despite lagging performance in early 2025, municipal bonds offer clear and present value, with yields as a percentage of Treasury rates that are extremely high.

While a 10-year T-bond yields 4.2%, for example, you can find AA-rated and AAA-rated tax-free issues galore priced to yield as much or more to maturity, for a taxable-equivalent yield in the range of 6% to 7%. This is due to what U.S. Bank bond honcho Bill Merz calls "an incremental blend of a variety of things," including a burst of new muni supply in 2025 that was just in time for mass selling of illiquid municipal exchange-traded funds that cheapened the entire sector.

But now yields are high enough to bring insurance companies back alongside individuals. And if you reckon the world is quasi-boycotting Treasury debt and other U.S. assets, foreigners are not much of a factor in municipals.

Next — and this sounds counterintuitive — I would not avoid high-yield corporate bonds. Yes, this group is more closely correlated to stocks than munis and Treasuries. And yes, in April some of my favorite high-yield funds, such as Fidelity Capital & Income and Hotchkis & Wiley High Yield, got body-slammed while stocks crashed. But unless you think the economy is failing — the first-quarter decline in economic growth is misleadingly negative — the extra yield will still pay for itself.

"Fifty percent of high yield is double-B, while it used to be only one-third," says American Century's corporate bond chief Jason Greenblath. While bank-loan defaults may be creeping higher and CCC-rated bonds are dicey, BB bond credit problems are not.

Most high-yield funds lean toward the stronger layers of the sector. And after the struggles in April, the spread between BB bonds and Treasury yields has narrowed again after spiking to more than 3 percentage points in the April trading panic. But at around 2 to 2.5 percentage points, the extra income is still greater than at the start of the year.

Nice yields, minimal risk

I also see fresh opportunities in preferred stocks, either via funds or in the individual issues of banks, utilities and insurance companies.

The rule is that any $25-par-value investment-grade preferred priced at around $23 is safe to buy and becomes an instant source of extra yield. Various Allstate, Bank of America, JPMorgan, Truist and electric-company preferred shares occupy this zone, for current yields between 6% and 7% and minimal risk.

If you go down in quality to BB, you can find more than 7%. Banks and insurers are in better condition than in 2008, so if the entire economy really does falter, they will not fail or get downgraded to where the value of these obligations takes another whacking.

I’ll note that the stocks and stock funds that did the best during the worst of the unpleasantness are the most bondlike: AT&T, Realty Income, Franklin Low Volatility High Dividend ETF — or pretty much any fund with "dividend" in its name. Nothing is immune from renewed pressure if the political situation, the economic situation or both descend into another, more intractable crisis.

The chance of stagflation and that sell-America theme rule out long-term Treasury bonds unless you can hold to maturity. But the domestically focused high-income standbys that have been dear to my heart for decades are likely to survive.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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In times of economic uncertainty, all eyes are on the stock market.

In April, investors saw the S&P 500 Index decline 18.9% from its February peak. The index has recovered some of its losses, though it remains volatile.

During this volatile period, there has been much attention paid to the fluctuations of the 10-year Treasury bond.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

This instrument is widely recognized as a crucial indicator of the broader economic landscape and plays a pivotal role in the day-to-day operation of the global financial markets.

Its influence extends beyond the confines of government finance, impacting everything from mortgage rates to the overall cost of borrowing. This makes the 10-year Treasury an essential watchpoint for investors, economists and policymakers alike.

A quick primer on Treasury bonds

The federal government issues Treasury bonds to finance its operations, with maturities ranging from four weeks to 30 years. Ten-year Treasury bond investors are paid interest semiannually, known as the coupon rate, and receive their principal back at maturity.

During the bond’s holding period, however, investors may notice that the fair market value of their Treasury bonds fluctuates.

Usually, these movements are in response to interest rate changes. The key point for investors to remember is that bond prices and interest rates move in opposite directions.

As a bond’s maturity approaches, these fluctuations tend to be less dramatic.

What happened in April?

Since the stock market began its sharp drop in early April, the price of 10-year Treasury bonds has also declined. This development is curious, since during times of economic uncertainty, investors often seek the safety of Treasury bonds.

This increased investor demand should have resulted in higher, not lower, Treasury bond prices.

According to Steve Preikschat, client portfolio manager at Janus Henderson Investors, “Tariffs and the associated inflation risks are the primary culprits of the move higher in 10-year Treasury rates, (resulting in lower valuations) as investors demand higher yield compensation for lending capital in this uncertain environment.”

Erika Oquist, Janus Henderson Investors’ fixed-income specialist, further explains, “If the market is anticipating higher inflation, today’s 10-year Treasury coupon payments may not look so attractive in a few years. This sentiment has dampened demand, driving valuations lower.”

Next steps for investors

Our advice to bond investors is similar to what we’d recommend for stock investors: We think the best course of action is to remain patient and avoid making any rash decisions.

As Oquist points out, “Despite the fluctuations observed in April 2025, the fundamental attributes of Treasury securities in providing stability and safety in investment portfolios remain unchanged.”

Preikschat adds, “The silver lining of the move higher in 10-year Treasury yields (lower prices) is that today’s yields are extremely attractive for investors looking to add to their bond holdings.”

Both of our in-house fixed-income experts remain bullish on the benefits of properly diversified portfolios.

Despite the recent drop in prices, bonds have squeezed out about a 1.73% return so far in 2025 (as of May 13), as measured by the Bloomberg U.S. Aggregate Index, which tracks a basket of government and investment-grade corporate bonds.

In fact, bonds have performed exactly as advertised in 2025, buoying portfolios during a difficult period for stocks.

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According to Oquist, “Portfolios should be built for the long term, and that includes both growth-oriented investments as well as safer investments to help manage the risks and uncertainties inherent in the financial markets.”

Final words

Eventually, this recent bout of volatility in both the stock and bond markets will pass (although no one really knows when).

Ben Rizzuto, wealth strategist at Janus Henderson, recommends that investors “review their financial plan and remind themselves of the goals they created for the future. This exercise can often help investors transition from a short-term, emotional mindset to a calmer, more future-oriented outlook.”

For investors who have not created a financial plan, Rizzuto suggests now is a great time to do so.

Our experts agree on one thing — investors who exercise patience are likely to benefit over the long term.

The information contained herein is for educational purposes only and should not be construed as financial, legal or tax advice. Circumstances may change over time so it may be appropriate to evaluate strategy with the assistance of a financial professional. Federal and state laws and regulations are complex and subject to change. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information provided. Janus Henderson does not have information related to and does not review or verify particular financial or tax situations, and is not liable for use of, or any position taken in reliance on, such information. Janus Henderson is a trademark of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Municipal bond investors may have a rare and compelling opportunity to lock in high yields.

High-grade municipal bond yields, particularly at the long end of the curve, are near their highest levels in over a decade, according to the Bloomberg Municipal Bond Index through May 8.

And the ratio of the tax-equivalent yield on 30-year AAA-rated munis vs U.S. Treasuries is currently sitting just above 90%, according to Bloomberg's Evaluated Pricing Service as of May 8.

That means many muni bonds are practically offering tax exemption at little or no cost to investors.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

The combination of high outright yields at that ratio to Treasuries doesn’t happen very often — and when it does happen, it typically doesn’t last long.

The perfect storm: What drove munis to these levels

The reasons are technical in nature:

• Increased supply. Tax-exempt muni issuance in the first quarter of 2025 was 23% above the record pace set the previous year, according to Bloomberg through March 31, putting pressure on municipal yields.
• Treasury market volatility. In early April, the combination of high volatility in the Treasury market and moderate bond-to-equity rebalancing pushed rates for high-grade bonds up significantly at the long end of the curve.

Those headwinds have left munis relatively cheap compared to other fixed-income asset classes and have pushed their total yields up to a high-water mark.

However, as we head into summer, the typical seasonal patterns suggest that supply will decrease and demand will rise, driven by coupon and principal reinvestments.

Despite the recent technical pressures, muni credit quality remains intact at high levels. In recent years, state and local governments have applied excess fiscal stimulus wisely, building rainy-day funds and buffers for turbulent conditions.

Moreover, we expect municipal revenue sources to be largely insulated from any direct impact from tariffs.

In short, we’ll soon be entering a traditionally strong period for munis, with the added appeal of exceptionally cheap valuations and solid credit fundamentals.

Long-dated high-grade munis have become especially attractive of late. The chart below highlights the excess tax-equivalent yields that munis are offering vs Treasuries in the long end of the curve.

This differential has grown significantly since the end of last year. Not only are these opportunities rare, but they are also short-lived.

The investment case in brief

Munis are in good position to deliver strong returns this year, with tax-equivalent yields close to 7% on an after-tax basis, and provide a ballast in the event of an economic downturn, according to the Bloomberg Municipal Bond Index yield and Vanguard calculations as of May 8. (The municipal tax-equivalent yield is calculated using a 40.8% tax bracket, which includes a 37% top federal marginal income tax rate and the 3.8% net investment income tax to fund Medicare.)

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Given the current yields, valuations and technical tailwinds, longer-dated high-grade munis represent a sweet spot in the market.

Conditions are likely to shift in the coming months, so investors may want to consider seizing this investment opportunity before it’s gone. And remember that all investing is subject to risk, including possible loss of principal. (Read another timely take on muni bonds in the article Financial Analyst Sees a Bright Present for Municipal Bond Investors.)

If you’re considering investing in munis, you should be aware that although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund’s trading or through your own redemption of shares. For some investors, a portion of the fund’s income may be subject to state and local taxes, as well as to the federal alternative minimum tax.

Also, bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For over a decade, fixed-income investors navigated a barren yield environment shaped by an era of relentless monetary intervention.

The Federal Reserve’s prolonged near-zero interest rate policy and aggressive bond-buying programs — designed to resuscitate economic growth — effectively suppressed yields, leaving investors starved for cash flows.

However, the bond market landscape has changed significantly, giving investors new opportunities to generate meaningful income. We see this clearly in the municipal bond market.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Investment-grade municipal bonds are providing notably attractive taxable-equivalent yields for investors in high tax brackets, and sharp fund outflows in early April, resulting from the recent trade policy shocks and tax season, have created an even brighter entry point for investors.

Liberation Day and market reaction

Even before municipal rates increased abruptly in April, investment-grade municipal bond yields appeared attractive. As of March 31, the Bloomberg Municipal Bond Index’s 6.50% taxable-equivalent yield for top taxpayers had been surpassed only 3% of the time over the past 15 years.

Additionally, real yields, or yields after adjusting for inflation, rivaled levels not seen since 2013 and were strongly positive, in contrast to the negative real yields seen in 2021 and 2022.

The market sell-off after the tariff threat announced on April 2, which President Trump called Liberation Day, has only increased the attractiveness of this opportunity.

Following the tariff threat and the resulting global market turmoil, municipal funds experienced significant outflows, the most seen in several years, which sent yields for high-quality municipal issuers soaring by nearly 100 basis points in just three days, mirroring moves seen during the onset of the COVID pandemic in early 2020.

The timing also coincided with tax payment season, when municipal funds have witnessed outflows in the past.

The combination of these factors has created an excellent opportunity for investors to lock in high levels of tax-exempt income at a time when the credit fundamentals of municipal issuers remain broadly strong. The index taxable-equivalent yield climbed to 6.86% as of May 14.

Municipal bond relative value: An even greater opportunity

While the historic appeal of municipal yields is evident, our relative value analysis demonstrates a compelling case for municipals.

One relevant valuation measure shown in the chart below is the municipal/Treasury yield ratio, which helps assess the value of municipals relative to taxable fixed-income bonds.

The 10-year AAA municipal/Treasury yield ratio has averaged 67% over the last two years but rose well above this average during the last month, driven by the recent municipal fund outflows. A higher ratio indicates increased relative value for municipal bonds.

While the ratio has started to decline, normalizing from the dislocated peak seen in April, at 74% it is still particularly attractive compared to the average over the last two years.

Another traditional valuation metric to consider compares municipals vs equities, using the taxable-equivalent yield of municipal bonds in relation to the stock market's earnings yield.

The current earnings yield of the S&P 500 Index is about 4.5%, based off the forward price-to-earnings ratio at roughly 22 (investors are essentially paying $22 for every $1 of corporate earnings, resulting in an earnings yield of 4.5% ($1 divided by $22)).

Due to the extended period of low interest rates over the past 15 years, it has been uncommon for municipal bond taxable-equivalent yields to exceed the earnings yield of the S&P 500 Index.

The chart below illustrates that, until recently, the last time municipal bonds had a valuation advantage over equities this significant was in 2002.

Conclusion

Municipal bond instruments, no longer hampered by suppressed yields, offer high-tax-bracket investors an excellent opportunity to secure low-volatility, high-quality returns at yield levels rarely seen in over a decade.

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Municipal bonds present a compelling value proposition with taxable-equivalent yields near 7%, outpacing inflation and rivaling equities on a risk-adjusted basis.

While economic and policy uncertainties persist, the convergence of rising real yields and sound credit fundamentals suggests that municipal bonds should be a strategic cornerstone in portfolio construction to provide tax-advantaged income and wealth preservation. (Read another timely take on muni bonds in the article Such Attractive Yields in High-Grade Munis Are Rare and May Not Last Long.)

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The information contained in this article reflects A&M’s views as of the date of this publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. A&M has obtained the information from various third-party sources believed to be reliable, but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. A&M is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When it comes to inflation, the U.S. has been living in a fool’s paradise. Inflation — that is, the rise in the general level of prices — has been a fact of economic life, averaging 3.3% annually since 1914. But from 2009 to 2020, the consumer price index rose just 2.1% a year. We got used to inflation one-third lower than the historical norm, which is why post-COVID prices have been such a shock.

The best way to drive inflation out of the system is to hike short-term interest rates. Rates had been sitting close to zero from 2009 to 2022, with the exception of a brief period around 2018. Then the Federal Reserve started to increase rates relentlessly — to more than 5% in just two and a half years. The antidote worked, up to a point. Inflation dropped from 8% in 2022 to 4.1% in 2023 and to 2.9% last year. But the Fed’s target is 2%, and it’s having a tough time getting there.

“American inflation looks increasingly worrying,” said a headline in The Economist in February. President Trump was elected, in part, to stop prices from rising so much, and he has been trying. With Elon Musk, he has cut government employment and programs, but prices don’t react quickly to fiscal changes unless they’re so extreme as to cause a recession — an almost certain way to end inflation with a cure as bad as the disease. The president also wants to drive down energy costs by increasing domestic oil drilling, but oil prices are determined by global forces.

Consumers are concerned, and if they start to think that inflation is rising, they will drive up prices by buying goods ahead of further anticipated increases. The most recent University of Michigan Survey of Consumers found that expectations for inflation over the next year jumped from 3.3% in the previous month’s survey to 4.3% — the highest reading since November 2023 and the second consecutive month of unusually large increases. A big reason is the threat of higher tariffs, which would raise the cost of goods that Americans buy — not just imported goods, but U.S.-made products as well.

Stocks to buy when inflation is rising

So, the fool’s paradise may be ending. Inflation of 3% may not sound like much, but it means that the dollar loses half its value in 24 years; at 4%, it happens in just 18 years. In such a scary environment, is there a way to protect your investments?

The surprise answer is to buy stocks. Consider the worst period of inflation in U.S. history, 1977–81, when the CPI rose at an annualized average rate of 10%. The S&P 500 stock index returned an annualized 8% — a bit below the norm but much higher than returns on long-term U.S. Treasuries, which fell by an average of 1% a year, including interest payments and price declines.

The reason stocks do better is that businesses can counter their own higher costs by raising prices. With inflation averaging about 5% between 2022 and 2024 and the Fed aggressively boosting interest rates, the S&P 500 has produced an annualized return of about 9%.

In an article I wrote in this magazine 19 years ago, with inflation rising, I recommended stocks of companies that appeared to have the power to raise their prices without much resistance. One example was Coca-Cola (KO, $71), which has risen from its price back then of $22 a share while paying a dividend that has jumped by two-thirds (the yield is now 2.9%). I still like Coke; no one can make Coke but Coke. (Securities I like are in bold; prices are as of February 28.)

Other stocks in this category are technology businesses that sell distinctive services by subscription — charging small amounts each month for cloud storage, for example. Apple (AAPL, $242) and Alphabet (GOOGL, $170) are excellent choices.

A non-tech stock that raises prices with impunity is Public Storage (PSA, $304), a real estate investment trust that provides a more mundane kind of storage — for cartons and furniture you don’t want to keep at home. Once you have stored your earthly possessions with Public Storage, moving them to escape a 5% price increase is annoying and onerous. The stock has returned an annualized 11.7% for the past five years.

Another category for inflationary times includes stocks that earn a fairly consistent proportion of a growing pie. Unfortunately, these franchise companies — such as advertising agencies, insurance firms, realtors and ticket sellers — are undergoing upheavals now. Still, there are stocks I like. One is Live Nation Entertainment (LYV, $143), the giant concert producer. Another is Chubb (CB, $285), an insurance company specializing in high-income clients.

How to invest in commodities

Prices of commodities typically rise in inflationary times, but buying leveraged futures contracts comes with severe risks: Transaction fees are high, and a sharp dip can wipe out all of your capital. Also, I have a bias against putting money into things (lumber, pork bellies, gold) rather than people and ideas.

Instead, invest in commodities through natural-resource funds that let you take advantage of human ingenuity as well as the prices of goods rising with inflation. An attractive choice is Vanguard Materials (VAW, $197), with an expense ratio of just 0.09%. The exchange-traded fund’s portfolio is headed by Linde (LIN, $467), a U.K.-based company that sells industrial gases, such as nitrogen and helium, and has a market capitalization (price times shares outstanding) of $221 billion. The stock has doubled in less than five years.

Also consider iShares North American Natural Resources (IGE, $44), an ETF whose portfolio leans heavily toward oil and gas stocks, such as EOG Resources (EOG, $127), but also owns such intriguing companies as CRH (CRH, $103), an Ireland-based producer of building materials such as granite and sandstone.

What about Treasury inflation-protected securities?

What about TIPS, or Treasury inflation-protected securities, which pay a guaranteed real rate of interest plus an inflation kicker that rises with monthly changes in the CPI? At an auction in February, 30-year TIPS were sold carrying a real rate of about 2.4%, the highest since 2001. If inflation averages 3% until maturity, your annual return will exceed 5%.

But TIPS markets are remarkably volatile. In a time of above-average inflation, I would stay away from bonds and bond funds — except those with very short-term holdings. The problem is that when interest rates rise with inflation, the bonds you bought at a lower fixed rate lose their value.

Better to stick with stocks, even though you’ll have to be content with lower returns than in times of stable prices. In fact, one of the best ways to ride out inflation is simply by owning a representative chunk of the market through SPDR Dow Jones Industrial Average (DIA, $438), an ETF known as Diamonds. Many of the Dow’s 30 components are built for inflationary times, among them Nike (NKE, $79) and insurance giant Travelers (TRV, $258). Also, the Dow leans more toward value-oriented stocks, which do better during inflation, than toward growth-focused issues.

Inflation will never be an investor’s friend, but it doesn’t have to be an enemy either. Keep cool and carry a diversified portfolio.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. He owns none of the securities mentioned here. You can contact him at JKGlassman@gmail.com.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Multiple decades have passed since John “Jack” Bogle revolutionized investing and taught us that index-like returns should be the bare minimum our clients should expect from their portfolios. High-fee products that couldn’t generate long-term outperformance no longer met “the standard.”

Since then, indexing strategies have grown exponentially, particularly within ETFs. If an investor felt their manager was not meeting their expectations of index-or-better returns, there were many substitutes that could.

Municipal bonds, a fragmented asset class, was slower to mature in the passive trend. For a long time, many considered the concept of “municipal indexing” an oxymoron.

Because with nearly 1 million bonds in this market, every buy decision within a portfolio presents a large benchmark-relative overweight and therefore benchmark-relative risk.

Even Vanguard offered only active strategies for municipals for decades.

However, recent improvements in technology, data, systematic trading and risk analytics have enabled a more effective set of conditions for municipal indexing to be successful.

Flows have acted accordingly. Assets in passively managed municipal ETFs stand at $118 billion, nearly tripling over the last five years.

Over this time, the number of ETF products hasn’t expanded as rapidly. Instead, the rise in assets is attributable to incumbent products becoming larger, more diversified and more liquid.

Just as it did for other asset classes decades ago, indexing is now setting the “Bogle standard” for municipal investing: Do not settle for less than index-level returns!

Investors now have a variety of at-scale passive municipal strategies at their fingertips across investment-grade state and national exposures.

Regardless of vehicle (mutual funds, ETFs, direct bond purchases and SMAs), high earners should recognize the evolution of this market, with this new standard for municipal investing, and reassess their expectations for investment outcomes.

Our clients should now be asking for more from their municipal investments, unwilling to compromise for anything less than index-or-better returns.

A few last thoughts to round out the picture:

• We use the phrase “index-or-better returns” to capture the idea that active managers are still highly valuable in this fragmented market, but investors should require such managers to outperform over full market cycles net of fees.
• Some managers will deliver excess beta within supposed investment-grade strategies and call it alpha. Be discerning, look at benchmark-relative drawdowns and ensure the strategy is what you think it is.

All investing is subject to risk, including the possible loss of the money you invest.

Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares. For some investors, a portion of the fund's income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

You may have heard that key provisions of the 2017 Tax Cuts and Jobs Act (TCJA), also known as the "Trump tax cuts," are set to expire at the end of this year. As a result, Republican lawmakers, currently controlling both chambers of the U.S. Congress, are exploring several controversial proposals to pay for what the Congressional Budget Office (CBO) estimates could be $4.5 trillion in extended tax breaks over ten years.

One option reportedly on the table that could affect millions of U.S. households? Eliminating or limiting the tax exemption on municipal bond interest.

This potential change is raising alarm in the $4 trillion municipal bond market, long considered a cornerstone of U.S. public finance and a popular investment choice for many so-called “regular” investors.

Is this the last year muni bond interest will be nontaxable at the federal level? Read on to learn more.

Municipal bond tax exemption on the chopping block?

Municipal bonds, also known as "munis" (debt securities issued by state and local governments to finance public projects), typically offer tax-exempt interest income at the federal level. (That interest is also often tax-free at the state level if your state issues the bond.)

So, the federal government forgoes anywhere from $32 to $42 billion annually in estimated revenue due to the muni bond interest exemption.

Stephen Moore, an informal economic adviser to former President Donald Trump, has been vocal about taxing municipal bond interest.

Moore argues that targeting muni bonds aligns with Republican goals of "widening the tax base" and is "politically feasible" because it primarily affects high-income investors who benefit most from the exemption.

"You want to impose taxes on the wealthy? This is an effective method," Moore told Bloomberg.

Moore has additionally suggested that eliminating or capping the exemption could help offset the cost of extending TCJA provisions without increasing overall tax rates.

And while lawmakers are discussing eliminating the tax exemption, other approaches are reportedly under consideration. For example:

• Targeting Specific Bond Types: The tax preference could be changed for specific categories of bonds, like private activity bonds and Build America Bonds.
• Phased Approach: A gradual reduction of the tax exemption to mitigate market disruption.

Meanwhile, U.S. House Budget Committee Republicans have identified this move as a potential revenue source, estimating it could generate approximately $250 billion over ten years.

Impact on muni investors

The potential impacts of any change to how bond interest is taxed could be far-reaching. The municipal bond market is a core component of financing public infrastructure projects across the United States.

On its website, industry coalition group Municipal Bonds for America (MBFA) states, “Today, roughly 75% of the infrastructure in the country is financed by municipal bonds, accounting for 4 million miles of roads, 16,000 airports, and 900,00 miles of water pipelines.”

Municipal bonds have also long been a popular choice for individual investors looking for stable, tax-advantaged income. Data show that individual households own approximately 66% of outstanding municipal securities.

According to MBFA, muni bonds are predominantly held by individual investors, with about 72% owned directly or through mutual funds. The majority of these individual investors are over 65 years old.

The organization also points out on its website that a notable portion (reportedly about 40%) of municipal bond interest is paid to households earning less than $200,000 a year. Still, as MBFA reports, businesses, including insurance companies and banks, own approximately a quarter of muni bonds.

That widespread ownership underscores the potential impact of tax changes on taxpayers who may rely on these investments for stable, tax-advantaged income.

If muni bond interest becomes taxable, investors would need to include the interest in their taxable income. That would likely increase their federal, state, and local tax liabilities and push some individuals into higher tax brackets, increasing their overall tax burden.

On a related point, Brian Egan, chief policy officer for the National Association of Bond Lawyers noted to the National Association of Countires (NACo): ”Municipal bonds have long been seen as a way for Americans to conservatively pay for their retirement, to get tax certainty later in life. Taking away this tool would create yet another disruption on the investor side.”

Additionally, if the tax exemption were eliminated, bond advocates argue the consequences could be far-reaching, including:

1. Higher Borrowing Costs: Removing the tax exemption would likely increase borrowing costs for state and local governments by as much as 35% to 40%, according to some estimates.

2. Market Disruption: A potential sell-off could further increase yields and borrowing costs and strain state and local government finances.

3. Infrastructure Impact: Increased borrowing costs could hurt funding for critical infrastructure projects.

The Tax Policy Center reports that repealing the muni bond tax exemption could lead to less investment in state and local infrastructure. “Alternatively, state and local governments would need to increase local taxes or cut spending to maintain infrastructure spending,” the TPC states.

Not surprisingly, several industry groups are mobilizing to protect the tax-exempt status of municipal bonds. For example, the BDA, the National Association of Bond Lawyers (NABL), and the Public Finance Network (PFN) have each launched advocacy efforts to preserve the exemption.

The Government Finance Officers Association’s (GFOA) policy statement on tax-exempt status of bonds includes the longstanding industry principle that “no federal tax should be imposed, either directly or indirectly, on the interest paid on state and local government obligations issued to provide services to the public.”

Trump Tax Plan and bond tax exemption: Bottom line

As Congress debates how to fund its next round of tax cuts, municipal bond interest remains "in play," as Moore reportedly described it to Bloomberg.

However, it’s important to note that no specific legislation has been introduced yet in Congress to repeal the muni tax exemption.

Right now, congressional Republicans are working to advance President Trump’s tax agenda. But key differences between the House of Representatives and the U.S. Senate (both of which are led by Republicans) appear to be creating hurdles.

Both chambers are racing to finalize their plans, with major TCJA provisions set to expire at the end of 2025, and the debt limit at risk as early as this summer.

• The House passed a sweeping budget resolution (“one big beautiful bill,” according to President Trump) that includes about $4.5 trillion in tax cuts over the next decade.
• The Senate plan is smaller in scope, with a $340 billion price tag.

Still, for the millions of American households invested in municipal bonds, the coming months will be a time to stay informed and consider how potential changes might affect their financial futures.

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A medallion signature guarantee, also known as a medallion stamp, is designed to protect financial institutions and individuals from fraud when stocks, bonds or other financial assets are transferred from one account to another.

For example, if you are the executor of an estate, you may be required to obtain a medallion stamp to authorize the transfer of securities from the original owner’s account to beneficiaries.

If securities are held in a living trust, the trustee may have to obtain a medallion stamp to transfer them to the trust’s beneficiaries.

You may also need a medallion stamp to transfer a brokerage account to another person, such as a family member, or to an account of your own with another firm.

A transfer of ownership for a certificate of deposit also typically requires a medallion stamp.

And if you’d like to give someone securities, you may need a medallion stamp to process the transfer — particularly if you’re giving physical stock certificates rather than electronic shares. In that case, you’ll be required to sign the back of the certificate and provide the medallion stamp to authorize the transfer.

If you think you need a medallion stamp, start by looking up the transfer agent, which is responsible for recording changes of ownership and other shareholder records for publicly traded companies, mutual funds and other entities. (Find the transfer agent’s name by going to the website of the company that holds the asset you’re transferring and searching the investor relations section.)

The agent will provide you with the necessary forms to make the transfer.

Then find out whether your bank or credit union is authorized to provide a medallion stamp. If it can, you may be able to get a stamp at no cost, although some will provide stamps only to customers who have had an account for a certain amount of time — say, six months.

If your bank doesn’t offer medallion stamps, you may be able to get one at another bank, typically for a fee ranging from $10 to $50, depending on the institution and the complexity of the transaction.

The Securities Transfer Association, a trade association for transfer agents, provides guidance on finding an institution that participates in the medallion signature guarantee program.

Applying for a medallion stamp

You must apply for a medallion stamp in person, so make an appointment at your financial institution or one that provides the service.

Generally, you’ll need a government-issued photo ID, the completed securities transfer form and account statements or stock certificates if you’re transferring physical securities.

For transfers involving a trust, you may need a copy of the trust agreement, power of attorney documents and/or a death certificate. Depending on the type of transaction, the institution may ask for additional paperwork, so make sure to request a list of required documents in advance.

In most cases, the review of a medallion stamp application will take two to five business days, although the time frame will vary depending on the complexity of the transaction.

Medallion stamps have no standard expiration date — transfer agents typically determine the period during which the stamp is valid. Check how long you have to complete the transfer once you’ve obtained the stamp. If there’s a delay, you may have to reapply for a medallion stamp guarantee.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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"Don't fight the Fed" is an old Wall Street mantra, reminding investors that betting against Federal Reserve policy is often futile. But over the next four years, a more fitting maxim might be: "Don't fight Trump."

Case in point: Uncertainty surrounding the Trump administration's tariffs and trade policies has rattled markets. The S&P 500 briefly entered correction territory in early March – this after soaring more than 23% in 2024, marking the first back-to-back years of 20%+ gains since the late 1990s.

For those who spent the past few years asking, "Why own anything but big growth stocks?", the market is serving up an answer.

Tech giants like Nvidia (NVDA), Apple (AAPL) and Amazon (AMZN) fueled the latest bull market, leading many investors to question the need for more conservative assets like bonds. But as volatility rises, those same investors may start to rethink their allocations.

"I think we got spoiled over the past 15 years," says Charles Weeks, CFP Board Ambassador and founding partner of Barrister. "Some investors forgot what it's like to suddenly lose 30% in six months."

So, is this bonds' time to shine? Or will inflation and a cautious Fed limit their appeal?

It's probably time for many investors to reacquaint themselves with bonds while also remembering another investing truth: tune out the noise and let reason – not emotions – guide your decisions.

Getting reacquainted with bonds

To understand their potential value right now, it helps to start with the basics. Bonds are loans to governments, agencies or corporations that pay regular interest and return principal at maturity.

They offer a steady income stream, with U.S. Treasury bonds considered the safest and corporate bonds carrying more risk but offering higher potential returns.

A key factor in bond investing is the relationship between interest rates and bond prices.

"Think of it like a seesaw," Weeks explains. "When interest rates rise, bond prices fall. When rates drop, bond prices go up."

That's why bonds struggled when rates climbed. But with the Fed cutting rates three times at the end of 2024 – and signaling the potential for two more rate cuts this year – they have become a more attractive option.

When it comes to bonds, Weeks urges investors to consider the yield curve and duration.

A steep yield curve suggests higher long-term rates, while an inverted curve can warn of economic trouble. Duration measures how much a bond's price moves when rates change. The longer the duration, the more sensitive it is.

For investors seeking stability, bonds provide reliable income and act as a hedge against stock market swings. While they lack the excitement of soaring stocks, their ability to smooth volatility could prove especially valuable in the years ahead.

The case for bonds in the current market

"Bonds are quite attractive now for a variety of reasons," says Scott Ward, CFP Board Ambassador and Wealth Advisor for Compound Planning. "First, they can offer investors competitive yields."

So far this year, bonds have done spectacularly well as a diversifier and a risk-off safe haven. Morningstar reports that core bonds have outperformed stocks.

With inflation stabilizing – at least for now – bonds have regained appeal. Weeks points out that money market funds are yielding around 4%, providing a solid place to park cash. If the Fed lowers rates further, bond investors could see price appreciation.

At the same time, the Trump administration, which has frequently noted the country's debt problems and committed to slashing costs, has a strong incentive to bring the 10-year Treasury yield lower to ease government borrowing costs.

Still, the economic landscape is uncertain. Tariffs could drive inflation higher, eroding bond returns, but if inflation continues to cool, rate cuts could boost bond prices.

But even as market conditions shift, bonds remain a steady force in portfolios.

"Taken together in a diversified portfolio, bonds can provide shock absorption during volatile periods," Ward says.

Weeks agrees, making the case that "There's always a reason to have bonds, even for younger investors. When stocks zig, bonds often zag, helping smooth volatility."

While some investors may chase short-term gains, bonds' true value lies in income, diversification and downside protection – qualities that could prove especially valuable in the years ahead.

How to gain exposure to bonds

Investors can buy individual bonds across various sectors and hold them to maturity, but for most, that's impractical. Bond funds, including ETFs and mutual funds, offer the easiest and most diversified way to gain exposure.

"For most investors, ETFs and mutual funds are the best way to own bonds," Weeks says. "Unless you're buying U.S. Treasuries or T-bills directly, I wouldn't recommend purchasing individual corporate or municipal bonds due to default risk."

Even highly rated corporate bonds carry the risk of unexpected events, such as accounting scandals. While municipal bonds were once considered extremely safe, some local governments have defaulted.

Weeks prefers bond ETFs over individual securities for this reason. "Think about Enron – it was once a market darling, then turned out to be one of the biggest frauds in history. Why take that risk when you can diversify with a fund?"

Experts say how much an investor should allocate to bonds depends on risk tolerance, time horizon and financial goals. Older and more conservative investors typically hold more bonds, while younger investors might allocate as little as 10% to fixed income.

Ultimately, uncertainty is just a part of investing. Trying to time the stock or bond market rarely pays off. Instead, focus on your own financial needs and not on what a president may or may not do next.

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Among my missions is to advise smart readers against doing dumb things out of haste or panic.

Over the past two years, that wasn't a problem. The financial markets were uncommonly calm, and the dreaded recession was a mirage, so you could scarcely go wrong with sound dividend- and interest-paying assets.

Stocks, including high-yield categories such as energy infrastructure, grew without interruption. Fixed income was a breeze, with 4% to 5% yields on cash and short-term equivalents, or 6% to 8% from high-yield bonds, floating-rate bank loans, and newcomers such as exchange-traded funds investing in collateralized loan obligations.

Even shares of long-suffering dividend king AT&T (T) posted a two-year 53% total return.

But in 2025, I sense serenity is giving way to a creeping climate of chaos. Besides the DeepSeek freakout and tariff attack on Canada and Mexico, investors face a debt-ceiling crisis, indications that the Federal Reserve will not cut interest rates again until at least the summer, and a steepening yield curve that stands to send the bond markets into reverse.

A bond slump would also hurt stocks because the correlation between the two grows closer by the day. In talks with strategists and portfolio managers, I hear more about fear, volatility and "uncharted waters" than I do about fresh opportunities and undervalued assets.

Yes, there are challenges. But let me quote the brilliant Baird Funds commentator Michael Antonelli, who just penned this pearl: "If you spent the last decade worrying about the national debt or politics, how did that help you grow your money?" The answer: It did not, and it will not.

So, despite the hazards I enumerated – and the specter of a Treasury default or near-miss is number one – I still resist surrendering to the urge to stash money under the mattress or, worse, to chase gold or other alternatives that yield zero.

My three-day rule remains valid: Do not sell anything due to a news event for three trading days. By then, the knee-jerk sellers are done, and rational or opportunistic buyers return to action. Four other protocols to help you through 2025:

Trust the dollar

Regardless of trade, China, conflict in the Middle East, or inflation, the buck will remain the world’s refuge.

Global capital inflows to the U.S. are rising. The Invesco DB U.S. Dollar Index Bullish Fund (UUP) is a straightforward way to ride the dollar's exchange rate.

Shoot for high yield, low duration

The safest debt investments pay well despite having the least price sensitivity to long-term interest rates.

I like the CrossingBridge Low Duration High Income Fund (CBLDX). Most bank-loan or CLO funds qualify. Target a 6% yield with little price movement.

Explore domestic energy

Oil and gas firms intend to return surplus cash flow to shareholders rather than overproduce and depress prices. It is reasonable to place at least 5%, if not 10%, of an income portfolio in pipeline and infrastructure holdings.

Plains All American Pipeline (PAA) and MPLX (MPLX), both limited partnerships, are my two favorite energy stocks.

Consider municipals

Cities and states are cash-rich, and municipals are also less vulnerable to the antics of the "bond vigilantes" who orchestrate serious Treasury sell-offs.

New 10- to 20-year, AA-rated tax-frees have current yields of around 4%, or a tax-equivalent yield of roughly 5.3% for someone in the 24% federal income tax bracket.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Short-term interest rates have come down, but floating-rate or bank loans, which carry interest rates that reset in line with a short-term benchmark, still sport robust yields. The yield on the typical bank-loan fund, 7.4%, topped every other bond fund category at the end of 2024, according to data firm Morningstar.

T. Rowe Price Floating Rate (PRFRX), our favorite bank loan fund and a Kiplinger 25 member since 2022, yields 7.2%. "The coupon rate on bank loans has never been higher," says fund manager Paul Massaro. "That leaves a cushion for bank loans to endure even more Fed cuts and still deliver high income."

Over the past 12 months, Price Floating Rate has gained 8.7%, outpacing 67% of its peers. By contrast, the Bloomberg U.S. Aggregate Bond index returned 1.3%.

In truth, bank loans can do well whether interest rates are rising or falling, within parameters. When rates are rising (and bond prices, which move in the opposite direction, are falling), these securities typically hold up better than the broad bond market because their interest payments adjust upward, too. In 2022, the Fed raised rates four times, and the typical bank loan fund lost 2.5% – but the Bloomberg U.S. Aggregate Bond Index fell 13% (Price Floating Rate lost 0.7%).

When interest rates fall, bank loans don’t necessarily sour, as long as the cuts aren’t draconian and the result of a struggling economy. Despite the Federal Reserve's one-percentage-point cut in short-term rates in 2024, for example, bank loans still beat "almost everything in fixed income," says Massaro. As long as the pace of rate cuts remains modest in 2025, he adds, Price Floating Rate should perform relatively well.

Massaro and his team of analysts dive deep to find quality loans trading at a discount. Over the past decade, the fund's annualized return of 4.7% beat 85% of its peers.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Cryptocurrencies are here to stay. A 2024 Pew Research Center poll found that 17% of U.S. adults have invested in, traded or used a cryptocurrency. Big firms such as BlackRock, Fidelity, Franklin Templeton and Schwab have made crypto investments available to their customers. The incoming Trump administration is crypto-friendly.

Should you consider crypto? It depends on where you are in life and what your financial situation is. The general rule is, don’t gamble with any money you can’t afford to lose.

Cryptocurrency is way out on the risk curve. It’s volatile. You can make a bundle or lose it just as fast. Some people have made their fortune; some have lost millions. Most folks have come out somewhere in the middle.

It is somewhat like buying lottery tickets or going to a casino. Maybe you’ll get lucky, and unless you’re very poor, losing $50 once in a while won’t imperil your financial future. A small stake in crypto won’t either. But making big bets can be perilous.

If you’re young, you can wait out the crypto market. Sooner or later, it will probably go up. Older people don’t have that luxury. When you’re retired, you’ll need a steady, reliable income to replace your former wages or business earnings.

Though some merchants do accept certain cryptocurrencies, most often, the only way you can get money out is by selling it. If you need to cash in when the price is up, you’ll do fine. But if you must sell when the price is low, you won’t. That’s the problem. Most cryptocurrencies are extremely volatile and experience wide price swings.

Reducing risk while keeping up with inflation: Stocks and bonds

People in or near retirement need to have their investments, savings and future income keep up with inflation without exposing themselves to excessive risk and volatility. It takes a balanced approach.

Here are some more appropriate investments for people in their 50s and older, starting with options that are higher on the risk scale and then moving on down to lower-risk possibilities.

Individual stocks. Having some money in common stocks can make sense, provided you can withstand volatility. While the stock market has performed spectacularly in recent years, far outpacing inflation, you have to have the stomach to bear sharp declines. (Remember 2020?) The law of gravity in the stock market hasn’t been repealed! Many financial experts recommend caution today because the major stock indices are at all-time highs.

Don’t overdo it. The right equity allocation depends entirely on your situation. Stick to a smart allocation over time.

Mutual funds and ETFs. Another way to reduce risk is to invest in stock mutual funds and ETFs instead of individual stocks. You can also achieve risk reduction by concentrating your holdings in stocks that may pay substantial dividends so that you’ll have a stream of income even if the market plummets.

Bonds. Bonds are less risky than stocks and pay out more income than most stocks. They’re worth considering, but they have drawbacks too. With individual bonds, you’ll get your principal back if you hold them to maturity, assuming the issuer (a corporation or municipality) remains solvent. That’s called credit risk. U.S. Treasury bonds have virtually no credit risk, but they pay lower rates.

Most people instead invest in bond funds but their price is not guaranteed. When interest rates rise, the price per share of a bond fund will fall. That typically won’t affect dividend payments, but it can be unnerving.

Lowest-risk options: Bank CDs and guaranteed fixed annuities

Guaranteed vehicles, in contrast, are very low-risk because both income and principal are guaranteed. What you see is what you’ll get, which is why they’re popular and useful from both financial and peace-of-mind viewpoints.

They include bank certificates of deposit and CD-type annuities, officially labeled multi-year guarantee annuities (MYGAs). With each, you get a guaranteed interest rate for a certain term. The biggest risk is that if you need to cash in a CD or MYGA before the term has concluded you’ll pay a varying penalty, which may be substantial. Some CDs and most MYGAs do offer penalty-free partial withdrawals.

Though similar in many ways, CDs and MYGAs have some significant differences. Bank CDs are guaranteed by the Federal Deposit Insurance Corp. (FDIC). MYGAs are not. But annuities are backstopped by annuity guaranty associations in every state. Coverage limits vary.

CDs in nonqualified accounts create taxable income every year. Nonqualified annuities offer tax deferral as long as you don’t take withdrawals from them, and you can defer interest distributions as long as you like. Any withdrawals of interest from an annuity before age 59½ are normally subject to a 10% IRS penalty.

Both CDs and annuities can also be very suitable for an IRA or Roth IRA.

Have your cake and eat it, too?

Can you get market growth potential without risking your principal? Surprisingly, it’s possible.

Fixed index annuities, first introduced in 1995, protect you from any losses but offer upside potential and can guarantee income too. Like any other vehicle, they have pros and cons.

Fixed indexed annuities credit interest annually to your account based on annual changes to a market index, such as the S&P 500 or Dow Jones Industrial Average. You receive an interest credit when the index value increases.

When index value decreases, even if the market dives 30%, you’ll lose nothing. Your principal and all previously credited interest are always protected, even if the stock market crashes.

But you don’t usually get all of that increase. You normally get only part of it because the annuity upside will be limited by a cap or participation rate percentage. So, you can have part of your cake and eat it, too.

Many indexed annuities let you purchase an optional income rider that guarantees a certain future lifetime income. These annuities are complex, and finding one that fits your needs takes more careful consideration than with a MYGA, which is straightforward.

If you’re considering investing in a cryptocurrency, evaluate your situation first. Do you need to take the risk it entails? Have you considered the alternatives? If you do decide to invest, limit your risk with a modest stake if you’re in your 50s or older.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Now that the Federal Reserve has cracked the interest rate ice, the next development will be to separate winners from losers. Most headlines and popular attention focus on the record-setting stock market indexes, on the premise that cheaper credit is rocket fuel and key rates are heading lower still.

Traders will sooner or later take profits, but do not mistake an ordinary correction born of overexuberance for real trouble until and unless heavy selling metastasizes and lasts longer than a couple of weeks. And that is unlikely as strong economic growth, capital investment, company earnings and steady consumer spending persist in negating any rational case for a switcheroo to a bear market.

Plus, as banks and money market funds pay less and less, high-dividend-yielding stocks, led by financials, utilities, and most sectors of real estate investment trusts (REITs), will see big inflows of cash.

Banks make wider profit margins on lending when they cut depositors' rates, and one result of that is higher dividends. Several banks have just announced nice dividend boosts, including JPMorgan Chase (JPM) and Fifth Third (FITB). And the busy season for all dividend raises (not only from banks) lies ahead in December and January; 8% and 10% increases are likely to be common.

But my view is mixed and murky with fixed-income (and floating-rate) debt and credit. Here is where you will see winners and losers. High-yield IOUs and tax-exempt bonds are fine, and so are shares of high-interest-rate nonbank lenders.

But I am extra wary of long-term Treasuries and mortgages, and I’m especially wary of passive, total-market-style bond index funds. I would rather accept 3% to 4% from T-bills than trust that government bonds will rally at the longer end of the yield curve.

A good-news-is-bad-news conundrum for bonds

The problem is that many bond traders and fund managers are hardwired to regret sweet economic growth and other positive business and financial news.

As the Fed lowers interest rates to goose the economy, more than a few fear sticky inflation or even another bout of higher readings, notwithstanding all the favorable monthly trends. That explains why the Fed cut sent long-term Treasury and mortgage yields higher, not lower– which sliced bond and bond-fund values. The Vanguard Long-Term Treasury ETF (VGLT) fell 1.3% in a week and a half, while the iShares 20+ Year Treasury ETF (TLT) coughed up 1.6%. This is the wrong place to be.

So why, then, would municipals and high-yield bonds be different? With tax-exempts, it is a net-yield calculation compared with cash – and 3% to 4% tax-free looks better and better as the Fed prepares to trim another 0.5 percentage point from cash returns. Plus, municipals' results lagged earlier in 2024 due to oversupply. But demand is heavy now, and so the returns for munis are improving.

As for high yield, the fortunes correlate closely with stock performance and economic vigor. Both short-term high-yield bonds, as supplied by the PGIM Short Duration High Yield ETF (PSH), and longer-term high-yield funds, such as the Fidelity Capital & Income (FAGIX), yield 5% to 6% with stable-to-rising net asset values.

Again, while Treasury and other taxable bonds had a rough 10 days after the initial Fed cut, Fidelity Capital & Income boosted its net asset value more than 1%, and the fund shows a 9.4% year-to-date return through September 30.

As I often say (and history is on my side), yield rocks. We are about to hear it rock even louder now.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Investing in bonds is a critical component of a well-rounded investment strategy. In fact, investors have dubbed 2024 The Year of the Bond, citing elevated starting yields, further potential rate cuts and a better ability to hedge future stock market volatility.

Bonds offer a unique set of benefits that can provide stability and income, serving different roles based on an investor’s goals and risk tolerance. Understanding how bonds fit into a portfolio and selecting the right bond fund requires an understanding of its intended purpose and the strategies that underpin successful bond investing.

The role of bonds in an investment strategy

Bonds primarily serve two essential roles within an investment portfolio. First, they act as a stabilizer. When equity markets become volatile, bonds provide a stable counterbalance, helping to mitigate overall portfolio risk. This stabilizing effect is crucial, especially during periods of economic uncertainty when stock markets may experience significant fluctuations.

Bonds also provide a steady source of income through coupon payments. This income can be especially beneficial for retirees or those looking to fund living expenses. For younger investors, bond income can be reinvested to further grow their portfolio.

Differentiating bond strategies

When building a bond portfolio, it’s important to keep in mind that the fixed income asset class encompasses a wide variety of security types — each with very different and unique risk and return profiles. Bond funds that invest in securities, such as Treasuries, government-agency mortgage-backed securities (MBS) and investment-grade (rated AAA-BBB) corporate bonds, are more likely to offer investors modest levels of income and returns but rank highly for their dependability, especially during economic or market stress.

On the other hand, bond funds that invest in things like high-yield or “junk” bonds, bank loans and non-government guaranteed commercial and residential mortgages offer enticing levels of income but may lead to unpleasant surprises during market downturns.

Selecting the right bonds

With so many options, what steps should you take to select the right mix of funds for your risk tolerance and return objectives? First, we recommend building a good, high-quality foundation. Investing at least 75% of your bond allocation in traditional “core” bond portfolios will help anchor an asset allocation and prevent the risk of unpleasant surprises. Pay extra close attention to the credit rating breakdown of a fund’s investments. If more than 5% to 10% of a fund’s assets are invested in securities rated below investment grade, it may carry too much risk.

Once you’ve got your portfolio’s quality ironed out, it’s important to understand a fund’s exposure to interest rate risk. For this, look for a measure called “duration.” As a rule of thumb, 1% change in interest rates will result in price fluctuation roughly equal to the fund’s duration.

Remember, however, that bond prices and yields are inversely correlated. To better understand, let’s consider a real-world example. If a bond has a duration of six years and interest rates rise 1%, the price of that bond will fall by roughly 6%. On the flip side, if yields fall by 1%, the price will increase by 6%.

Also, don’t forget to factor in the starting yield. In the above example, let’s assume the bond yielded 5%. An investor’s total returns would be about -1% and 11%, respectively. Many investors have been spooked by rising interest rates and are still heavily invested in short-term bond funds and even money market funds. With historically elevated yields, however, we believe it’s a good time to add duration to your bond portfolios. Funds benchmarked against the Bloomberg Aggregate Bond Index (aka the Agg) are likely to offer the best combination of quality and duration.

Finally, you should understand the tax implications of picking different types of bond funds. For example, municipal bonds are often exempt from federal and sometimes state taxes. This makes them an attractive option for taxable portfolios. However, for many investors, placing bonds in tax-advantaged accounts like IRAs can help minimize the tax impact of the income generated.

Current market outlook

Looking ahead, the outlook for the bond market appears quite favorable. In recent years, rising inflation has led to higher interest rates, which in turn caused bond prices to fall. However, with inflation stabilizing and even moderating, the outlook for bonds is improving. Economic data is also showing signs of moderation as the unemployment rate has edged up to 4.2% — the highest level since 2021. With the Federal Reserve having cut rates this September, the current yield environment offers a strong foundation for bond returns, and any decrease in rates would likely further enhance these returns.

Choosing the right bond fund involves understanding the stabilizing role of bonds, prioritizing high-quality securities and staying informed about market conditions and risks. For those considering bond investments, we recommend this research-driven approach — and keeping these principles in mind can lead to more informed and successful investment decisions.

Johnson Investment Counsel cannot promise future results. Any expectations presented here should not be taken as any guarantee or other assurance as to future results. Our opinions are a reflection of our best judgment at the time this material was created, and we disclaim any obligation to update or alter forward-looking statements as a result of new information, future events or otherwise. Johnson Investment Counsel is not responsible for the accuracy or relevance of any unapproved content originated or inserted by the publisher of this article, such as hyperlinks and potentially other data.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Whether you like it or not, members of Congress are allowed to buy and sell stocks. True, federal law prohibits them from using "nonpublic information derived from their official positions for personal benefit," and they're required to disclose their trades.

That said, it's understandable if folks don't quite trust politicians to be on the up and up when their personal fortunes might appear to be in tension with their duties as elected representatives.

Perhaps this is unfair; even cynical. But to modify a famous quote from Upton Sinclair, it's difficult to get a person to understand something when that person's salary depends upon the person not understanding it.

Take, for instance, the uproar around President Donald Trump, who said shortly before announcing a reversal on reciprocal tariffs that it "is a great time to buy stocks."

The reversal sparked a historic stock market rally and has some high-profile Democrats questioning if anyone in the Trump administration profited off the announcement.

Disclosure rules are supposed to help mitigate this problem. Thanks to these requirements, the public can follow what members of the House and Senate are doing with their investments.

Before we go further, please note that this activity shouldn't be used for trading purposes.

After all, insider buying and selling at publicly traded companies is voluminously disclosed and analyzed, but it doesn't really tell us much. That's because insiders – the executives and board members who know what's going on – can sell for any number of legitimate reasons, from paying tuition to portfolio diversification.

When it comes to stocks, insider buying is actually a more useful piece of information. And even then, it's not exactly a screaming buy signal.

Using insider activity among members of Congress as the basis for some kind of trading system is not a rigorous idea.

With those caveats out of the way, it is indeed interesting to see which stocks, bonds and private investments are most popular with members of the House and Senate. Perhaps more interesting is how certain pols churn their portfolios, which is to be avoided if you're a retail investor.

Have a look at the below table to see which politicians were the most active traders by volume over the past 90 days, according to data from Capitol Trades.

Stocks politicians are buying and selling

Look past the municipal debt and investments in limited liability companies, and you can see that pols are pretty normal when it comes to their buys. Top-rated Dow Jones stocks, mega-cap tech names and reliable and rising dividend-payers routinely make the list of our representatives favorite names.

Both sides of the aisle like many of the hottest stocks, including Apple (AAPL), Amazon.com (AMZN), Oracle (ORCL) and Broadcom (AVGO) these days – but then so does pretty much everyone else.

Interestingly, as much as Representative Ro Khanna (D-Calif.) is associated with tech investing, a number of his most recent biggest buys were stalwart blue chips such as JPMorgan Chase (JPM), the nation's biggest bank by assets, and Warren Buffett's Berkshire Hathaway (BRK.B).

Meanwhile, in addition to buying shares in speculative artificial intelligence (AI) firm BigBear.ai Holdings (BBAI), Representative Lisa McClain (R.-Mich.) also picked up Air Products and Chemicals (APD), which happens to be one the best dividend stocks for reliable dividend growth.

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The Federal Reserve is going to cut interest rates at the next Fed meeting, experts say. Only the size and pace of the central bank's easing campaign remain in doubt.

To recap: the worst bout of inflation to hit the U.S. economy since the Carter and Reagan administrations compelled the central bank's rate-setting committee to raise the short-term federal funds rate to a 23-year high. It has been sitting at a target range of 5.25% to 5.5% for more than a year. Inflation peaked more than a year ago but remains sticky, making the rate-setting committee, the Federal Open Market Committee (FOMC), cautious about easing too soon. 

However, the Fed has a dual mandate. In addition to stable prices, it is supposed to support maximum employment. And, alas, the lagged effects of restrictive monetary policy are beginning to show up in the labor market. Fed Chief Jerome Powell has always said the FOMC would be data dependent, and he acknowledged risks to the jobs side of the mandate at the July Fed meeting. Powell doubled down on his dovish turn at Jackson Hole in August.

Unless it's an emergency, the Fed doesn't make changes to policy without telegraphing them well in advance. A rate cut at the next Fed meeting isn't a certainty, but it would be a shock if the FOMC stood pat. 

A rate cut is coming

"History back to 1990 supports the idea that an initial Fed rate cut of 50 basis points signals an imminent recession (2001 and 2007)," write Nicholas Colas and Jessica Rabe, co-founders of DataTrek Research, in a note to clients. "Initial cuts of 25 basis points (1995, 1998, 2019) do not carry that baggage. Powell and the FOMC know this history."

Colas and Rabe expect a quarter-point cut, or 25 basis points (0.25%), at the next Fed meeting. However, a cut of 50 basis points (bps) remains very much in play. 

As of September 16, interest rate traders assigned a 61% probability to 50 bps of cuts, according to CME Group's FedWatch Tool, up from 50% the previous session. Meanwhile, the probability of a quarter-point cut fell to 39% from a coin flip.

It's also important to know that market participants might have a bit of a blind spot as they head into the next Fed meeting. After all, we're set to get a new Summary of Economic Projections (SEP), also known as the dot plot. This collection of forecasts from Fed governors and presidents tends to upset the market's previous assumptions.

The bottom line is that regardless of how much the Fed cuts at its next meeting, the race is already on to predict the trajectory of future reductions to borrowing costs. 

With the Fed set to pivot, we turned to economists, strategists, investment officers and other experts for their thoughts on monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Fed rate cuts: what the experts say

"We interpret comments from Fed officials just ahead of the blackout period to mean that the FOMC is more likely to cut by 25 bps than 50 bps. We think a 50 bps cut would be a sensible precaution against further labor market softening, but the Fed leadership has communicated a sufficiently dovish reaction function for the bond market to price cuts between 25 bps and 50 bps for several meetings, which also lowers borrowing rates and eases financial conditions today." – Jan Hatzius, chief economist at Goldman Sachs

"The Fed has the green light to cut 25 bps given that the August CPI report was in line with expectations. It's possible that some will be disappointed that there wasn't a lower-than-expected inflation reading, which might have given the Fed more room to cut 50 bps, but most of the Fed speakers have already telegraphed their desire to start slowly and not begin with a jumbo cut. Going forward, the risks are clearly weighted toward slowing growth and a deteriorating labor market, and that's why there are still four 25 bps cuts priced in with only three meetings left in the year (i.e. implying at least one of the three meetings would have a 50 bps), but if the economy continues to slow – and not drop into an abrupt recession – the Fed will be able to cut at a measured, 25 bps-per-meeting pace." – Chris Zaccarelli, chief investment officer at Independent Advisor Alliance

"The Fed probably should cut 50 bps next week … 

As the Fed themselves have said, inflation risks are moving into the rearview mirror, and they do not want to see further labor market weakness. Though strong wage growth suggests the bottom has not yet fallen out of the labor market, jobs creation has declined quickly. In an environment where policy is already restrictive by around 200 bps, moving more quickly towards neutral is a highly reasonable stance, in our view.

... but unless we see a downside surprise on inflation, my base case is that they'll cut 25 bps." – Lauren Goodwin, economist and chief market strategist at New York Life Investments

"Following the payrolls report last week, we updated our Fed call. We now expect the Fed to cut rates by 25 basis points (bps) per meeting starting next week and until March 2025. After these cuts, we think the Fed will be more gradual and resort to one cut per quarter. We still see outsized recession-like cuts as unlikely unless the economy materially deteriorates." – Antonio Gabriel, global economist at BofA Securities

"August's CPI report cemented market expectations that the FOMC will ease by 25 bps at its next meeting. The implied probability of a 25 bps move jumped to 83% from 66% shortly after the August core CPI print. We think investors are now well positioned for September's meeting, but we still see a strong chance of 50 bps cuts in both November and December." – Ian Shepherdson, chairman and chief economist Pantheon Macroeconomics

"Stable producer prices should drive investment and that will drive the economy. It is time for the Fed to cut, but they may well take it slow and steady. That seems to be their operating model. A 25 bps cut in September is the most likely outcome." – Scott Helfstein, head of investment strategy at Global X 

"The Federal Reserve is set to start shifting policy and lower rates at their next meeting. The big question will be whether the Fed cuts by 25 bps or 50 bps, and it'll likely come down to Chair Powell as to whether they go big to get ahead of clearly slowing labor market trends." – Sonu Varghese, global macro strategist at Carson Group

"The Fed is weighing the stickiness of service price inflation on the one hand against the softening of the job market on the other hand. The tradeoff makes them more likely to cut rates by a quarter percent at next week's decision than make a larger half-percent cut." – Bill Adams, chief economist at Comerica Bank

"Inflation trends will give the Fed the opportunity to pivot toward the employment mandate for the rest of this year. Given the stickiness of services inflation, the Fed will likely cut by 25 bps in the upcoming meeting and reserve the potential for more aggressive action later this year if we have further deterioration in the job market." – Jeffrey Roach, chief economist at LPL Financial

"Sticking the landing on rate policy is important to the Fed, but so is controlling the narrative and maintaining the central bank's credibility. With that in mind, there was nothing in the August inflation report that was likely to sway policymakers from the measured quarter-percent cut that they've been guiding expectations toward for some time." – Jim Baird, chief investment officer at Plante Moran Financial Advisors

"We find ourselves at a point where the markets are pricing in an aggressive policy rate cutting cycle, which to us appears to be overdone relative to what the Fed has suggested would be appropriate and relative to the underlying economic conditions at this stage. So, while we're quite certain that the Fed will commence with its rate cuts at its next meeting, there are several significant unknowns that cloud the extent and speed of rate cuts. From election/policy uncertainty for 2025, U.S. debt/Treasury supply dynamics and a particularly impactful period for volatile seasonal factors in economic data, there is a good deal we don't now know about the year ahead." – Rick Rieder, chief investment officer of global fixed income at BlackRock and head of the BlackRock global allocation investment team

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The U.S. bond market is about to enjoy the proverbial best of both worlds. Bond yields, an approximation for annualized bond returns, are high — the Bloomberg U.S. Aggregate Bond index yields 4.6%; U.S. high-quality corporate debt, 5.1%. And interest rates are poised to move lower, which means bond prices will ratchet up. (Interest rates and bond prices move in opposite directions.) 

Together, that’s a double leg up for bond market total returns. “I think this is one of the best times to put money to work in the bond market in 20 to 25 years,” says Thomas Urano, a managing partner at Sage Advisory. 

So now is a good time to revisit your core bond portfolio. You can always start with a broad bond index fund, such as iShares Core U.S. Aggregate Bond (AGG, yield 4.5%), an exchange-traded fund that tracks the benchmark considered to be a barometer of the bond market. But “each investor has their own goals and risk tolerance,” says Invesco’s Jason Bloom. “Our view is that investors can do better — much better — than just owning the Agg.” 

In fact, most active bond fund managers outpace the U.S. Aggregate Bond index over the long haul on average, according to fund-tracker Morningstar. Our favorite active core bond funds, Baird Aggregate Bond (BAGIX, yield 4.2%), Dodge & Cox Income (DODIX, 4.7%) — a member of the Kiplinger 25, our favorite no-load mutual funds — and Fidelity Total Bond (FBND, 5.2%), have each outpaced the Agg over the past one, three and five years. That’s why we prefer starting with an actively managed core bond fund — let an expert do the heavy lifting. 

But it may pay to complement your core holding with tactical tilts of exposure to certain bond sectors to enhance performance. We’ll walk you through some simple ways to optimize your portfolio for current market conditions by leaning into bond sectors that are attractive now. 

Of course, if you own shares in an active intermediate core bond fund, your manager may be making some of these moves already, so consider any shifts in terms of your overall portfolio. We’ve also included model portfolios, built by Elya Schwartzman at fund firm BondBloxx, as an example of how the pros might enhance yield or lower your portfolio’s sensitivity to interest rate shifts. (Yields and other data are through July 31, unless otherwise noted.) 

Mix up the ingredients

To beat the Agg, you’ll want the flexibility to beef up some sectors in your portfolio and de-emphasize others, depending on the market environment. The main ingredients in an investment-grade bond portfolio are Treasuries, corporate debt and mortgage-backed securities, with a dash of government-linked IOUs and asset-backed securities (such as bundled credit card and auto loans). 

Start with Treasuries. For now, it makes sense to emphasize Treasuries with maturities between one and 10 years. Although price declines from interest rates moving higher are largely in the rearview mirror, many bond experts still favor short- to medium-term government bonds, which are less sensitive than long-term debt to interest rate swings. 

But the yield curve remains inverted, which means shorter-term notes yield more than their long-term counterparts. And when rates start to fall, bond analysts expect yields to dip more on the short end. “We favor short-term because we like the high current yield and safety,” says BondBloxx’s JoAnne Bianco. “And intermediate-term bonds can still capture potential price returns when the Federal Reserve reduces interest rates.” 

Funds worth exploring include the SPDR Portfolio Short Term Treasury ETF (SPTS), which currently yields 4.6% and has a duration (a measure of interest-rate sensitivity) of 1.8 years. That implies if rates fall by one percentage point, the fund’s net asset value will rise by 1.8%. Or consider the Schwab Intermediate-Term U.S. Treasury ETF (SCHR), which yields 4.3% and has a duration of five years. 

Reach for yield within high-quality corporate debt. “Adding to your exposure to triple-B corporates is a good way to enhance long-term returns,” says Bianco. Corporate bonds rated triple-B are still investment grade, but offer better yields than higher-quality corporate debt and have better long-term returns, too. The trade-off is higher volatility. Over the past decade, triple-B corporate debt was 10% more volatile than the broad corporate-debt market. 

If you can stomach the added volatility, consider the iShares BBB Rated Corporate Bond ETF (LQDB), which yields 5.3%. The fund has returned 7.1% over the past 12 months. 

Pad the quality of your bond portfolio with a bigger dose of mortgage-backed and asset-backed securities, which offer compelling yields. Mortgage bonds may get a boost when rates fall and the home-loan refinance machine picks up again, says Sage Advisory’s Urano. The Vanguard Mortgage-Backed ETF (VMBS) charges just 0.04% in expenses, yields 3.8% and boasts an average triple-A credit rating. The fund has returned 5.1% over the past year. 

Many bond experts like asset-backed securities these days, especially credit card and auto IOUs. “They’re high-quality, triple-A-rated bond investments, and the maturity range is less than three years,” says Urano. Few funds focus exclusively on such securities, but we like the look of the Virtus Newfleet ABS/MBS ETF (VABS). The active ETF is small ($9 million in assets), but it invests in high-quality, short-term asset-backed and mortgage securities. Over the past year, its 8.3% return topped 92% of all short-term bond funds. It yields 5.0%. 

Venture beyond the Agg

One trick that winning intermediate-term core bond fund managers often use is to dip into the junk-bond market, which isn’t represented in the Agg. These low-quality corporate securities come with a higher risk of default and are more volatile. But over the past decade, they have returned 4.6% annualized, beating the 2.6% gain in investment- grade debt.

 “Many people shy away from high-yield debt because they are risk-averse in their bond portfolio,” says Bloom. But “historically, over the economic cycle — recovery, expansion, slowdown and recession — high yield is the only sector that has outperformed in every phase.” 

Stem the risk in junk bonds by keeping your stake small — say, 3% of your bond portfolio — and focusing on double-B-rated debt, the highest-quality tier of high-yield bonds. The iShares BB Rated Corporate Debt ETF (HYBB) holds only double-B-rated debt, yields 6.2% and has returned 10.0% over the past 12 months. The broad high-yield benchmark has done better, with an 11.0% return, but with higher volatility.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Model portfolios for bond investors

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When the Tax Cuts and Jobs Act (TCJA) became law in January 2018, it represented the largest redo of the U.S. tax code in decades — with far-reaching implications for individuals and businesses alike.

Many of its provisions were only temporary and are slated to sunset after 2025. If that occurs as scheduled, the effects will again be extensive, headlined by a considerable boost in the portfolio advantages and appeal of municipal bonds for many investors. Here are five things to keep in mind:

1. A potential reversion to higher marginal tax rates would be positive for muni bond demand.

In a higher-tax environment — and with higher tax-equivalent yields — demand for munis is likely to spike, making now an opportune time to invest before a potential run-up in demand.

The TCJA reduced the top marginal tax rate on individuals to 37% from 39.6%. If the TCJA sunsets after 2025, the highest marginal tax rate is expected to return to 39.6%.

The tax-equivalent yield on a muni increases as tax rates rise — making the tax exemption on munis more valuable for individuals who pay higher taxes. For example, the tax-equivalent yield on a tax-exempt muni yielding 5% is 7.93% at a 37% tax rate — but increases to 8.27% at a 39.6% tax rate.

2. The number of taxpayers subject to the alternative minimum tax (AMT) would increase dramatically.

The TCJA enacted a higher AMT exemption and an increase in the income at which the exemption begins to phase out. If the TCJA expires after 2025, it is estimated that the number of taxpayers paying the AMT would increase to 7.6 million in 2026 from current levels of about 200,000.

Certain Private Activity Bonds (PABs) issued in the muni market are subject to the AMT, muting the tax benefits for investors who are subject to this tax. With the potential for a major expansion of the AMT on the horizon, investors must remain vigilant about security selection, as we anticipate spreads on PABs, such as some airport bonds, would widen relative to other munis that are not subject to the AMT.

3. A potential lifting of the state and local tax (SALT) cap could benefit demographics — and issuer credit quality — in high-tax states.

Prior to the TCJA’s enactment, there was no limit on the amount of state and local taxes that taxpayers could deduct from their federal taxes. However, under the TCJA, a SALT cap was imposed, limiting the federal deduction to $10,000 for all tax filers.

The SALT cap disproportionately affects taxpayers in high-tax states. The cap’s end would lower the tax burden of residents in those states and could reduce any tax-driven incentive for residents to move elsewhere. The positive impact on the states’ demographics would support the longer-term credit quality of the muni issuers within their borders.

4. If discussions around changes in tax law signal a threat to the muni tax exemption, we could see accelerated issuance ...

Past tax law deliberations often have hinted at the potential for a rollback of the federal tax exemption for muni interest.

Under the TCJA, muni issuers lost the ability to advance-refund — refinance at a lower rate — tax-exempt bonds with proceeds from another tax-exempt bond issuance prior to the original bonds’ call date. As the TCJA legislation came together, some speculated that the impact on muni issuers would be even greater, with not-for-profit borrowers, such as private colleges, hospitals and charter schools, losing the ability to issue tax-exempt bonds.

5. ... But elimination of the tax exemption is highly unlikely.

Heading into this year’s election, we could hear fresh talk of a potential change to the muni tax exemption to help subsidize other elements of tax law change.

But the exemption is critically important to state and local governments, schools, hospitals, electric utilities, water and sewer systems, airports and toll roads that fund the nation’s vital infrastructure. Additionally, the exemption’s cost to the U.S. Treasury is quite modest — about $40 billion annually or $400 billion over 10 years — compared with the $4.6 trillion estimated cost of extending the TCJA for 10 years.

Because the exemption is essential to financing U.S. infrastructure, we do not believe its elimination is likely. However, in that extreme scenario, current tax-exempt munis, if grandfathered into the exemption, would become significantly more valuable — with considerable benefit for current investors.

As the prospects for TCJA’s wind-down become clearer, we will likely see asset prices start to respond to changing views regarding munis’ appeal. Every good planning discussion anticipates the future in enough time to get ready for it. That means that now is the time to revisit a muni strategy — and plan the portfolio adjustments needed to take full advantage if tax law takes a turn.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In my past few columns, I lauded bond ladders and high-yielding funds that own receivables such as bank loans and credit card obligations. With the Federal Reserve getting closer to easing credit as economic indicators cool down enough to disturb the stock market, it is ever wiser to guarantee potent income. Those effortless 5% cash returns will not vanish overnight. But by Thanksgiving, 4% is a realistic expectation for money market funds and Treasury bills.

For many of us, 4% is perfectly fine — especially if your personal inflation experience is diminished. That often varies with whether you rent or own and what you pay for car and property insurance. 

But if 4% is inadequate, or you remain inclined to take risks, the combo of falling yields and retreating expectations for inflation in the bond market stands to reward higher-coupon and higher-dividend holdings. (Those market expectations for inflation run lower than what consumers refer to as the cost of living and so can accelerate a decline in interest rates.)

Consider the week of July 29, when the Fed’s brass said it is about time to cut rates, and bad tech-company results then bludgeoned 1500 points off the Dow Jones industrial average and 1000 from the frothy Nasdaq composite. 

But beneath the red on those indexes, the markets emphatically and unambiguously supported low-risk, high-dividend names such as AT&T, Realty Income, Verizon, and the regulated electric and water utilities. (High-growth, lower-dividend utilities and real estate investment trusts did take their lumps, though.) 

Bonds’ big move. The bond market, meanwhile, rallied sharply. Among the gainers were our most esteemed actively managed bond funds, including Dodge & Cox Income (DODIX) and Fidelity Strategic Income (FADMX), which saw healthy upticks in net asset value atop their ongoing 4.7% and 5.3% distributions. 

Readers can stand by these multisector bond funds, as well as high-yield and short-duration funds I’ve previously recommended, such as exchange-traded funds BlackRock Flexible Income (BINC, $53) and PGIM Short Duration High Yield (PSH, $50) and mutual fund RiverPark Short Term High Yield (RPHYX). 

The Fed does not control the market rates that feed into their payouts the way it does with bank deposits and money funds, so the distributions, which currently run 5.7%, 9.1% and 5.4%, respectively, will not shrink much, if at all, in the near term. And easier credit terms stand to bolster the business prospects for the industrial and financial firms whose debts these funds hold.

Another extra-yield idea: The Federal Farm Credit Banks and the Federal Home Loan Banks are offering new bonds due in seven to 12 years with coupons of 5.7% to 6.0%. These government agency bonds are callable at par value six months after the date of issue, but that still means a premium yield for at least that long, as well as a chance to sell the bonds for a profit before the initial call date if these lenders’ rates on their next rounds of financing are 0.5 or 1 percentage point lower. 

And as for cash: As I write this, you could still originate a two-year CD ladder with an average percentage yield of 4.7%, or a one-year version for 4.8%. These yields stand to be lower in a few weeks and certainly once the Fed’s first cut is official. 

And if the next few monthly or quarterly jobs, retail sales, housing starts and other broad economic indicators soften, the central bank is unlikely to reduce short-term rates by more than 0.5 percentage point right away. The days of zero interest rates and “cash is trash” are not going to return, but neither will the appetite for higher yields be going away.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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It would be nice if there was an investment that could offer retirees growth potential, principal protection and complete liquidity. However, it doesn’t exist. There’s no such thing as a perfect investment, product or strategy. Nothing does everything well.

Traditionally, many investors have allocated a portion of their portfolio to bond funds in an effort to lower their overall risk while maintaining liquidity. The problem is bonds and bond funds are different. Bonds are guaranteed by and only as good as the entity that backs them, while bond funds are actively traded funds focused on the bond market bonds and can lose principal.

When retirees and near-retirees realize that their diversified portfolio of various stocks, ETFs and mutual funds, blended between the equities market and the bond market, is technically at risk, many start to look elsewhere for more safety. This is especially true when you consider the markets’ historical patterns, which I covered in my article Four Historical Patterns in the Markets for Investors to Know.

This article is intended to highlight the benefits and detriments of five investments and products that offer principal protection with growth potential. Please note investments and products that offer growth potential and principal protection are likely to underperform your standard benchmark indexes during the good years. However, because they offer principal protection, they won’t lose money in the down years (assuming there are no fees associated with the investment or product). Also, make sure to consider the credit rating of the entity that offers these investments or products. The principal protection offered is only as good as the entity that is backing them.

Liquidity could be an issue

Lastly, these investments and products also lack liquidity. Remember, there’s no such thing as a perfect investment, product or strategy. If you want growth potential and principal protection, you’ll have to give up some or all liquidity for a period of time. Consider for a moment that you probably don’t need access to all of your money in any given year. However, making sure a portion of your portfolio cannot lose ground may help you sleep better at night.

Don’t fall into allocation ambiguity and blindly guess how much needs to be protected. Design your lifestyle and legacy plan first and then build your portfolio around those requirements. If you want help understanding how to do this, you can learn more about how to create a retirement plan that’s designed to last longer than you without locking up assets into lifetime income streams from insurance companies in my book, How to Retire on Time. Let’s dive in.

1. CDs

Certificates of deposit, or CDs, are cash-equivalent products that offer a fixed rate for a fixed period of time. Because they are heavily influenced by interest rates, many banks may be hesitant to offer too high of a rate for too long of a period of time.

CDs tend to help with short-term protection needs. If the Fed were to drop rates, the new CD rates may not be enough to maintain your lifestyle expectations.

If you want protection with reasonable growth potential longer than two years, you may want to consider another option on this list.

2. Bonds

Bonds (not bond funds), like U.S. Treasuries or corporate bonds, are debt instruments guaranteed by the entity that backs them. Technically, you can sell a bond before its maturity if needed. However, if you were to sell before it matures, it would be sold at market price. That means you could sell it for a gain or a loss. If you want the protection, you would need to hold it until maturity.

Bonds may be a good fit if you want protection with a slightly longer duration than a CD, even though the short-term CD may have a higher rate. You never know when the Fed will increase or decrease rates. It is important to note that if interest rates were to go down, your bond would become more valuable, in case you decide to or need to sell it early. Otherwise, you can buy a bond and hold it to maturity, knowing what the rate is expected to be.

Be careful when picking high-yield bonds. The higher the yield or rate offered, the riskier the bond. Remember, bonds are only as good as the entity that backs them.

3. Fixed annuities

Fixed annuities, on the surface, are similar to a CD but from an insurance company. Insurance companies and banks operate differently. You may be able to get a higher rate for a longer duration through a fixed annuity. Once the annuity matures, you can liquidate it and spend it or move it into another investment or insurance product (e.g., fixed annuity, fixed-indexed annuities, etc.). If you are working with non-qualified funds, you can defer the capital gains tax by moving the cash from one non-qualified annuity into another non-qualified annuity through what’s called a 1035 exchange.

If you are younger than 59½, proceed with caution. Distributions from annuities before the age of 59½ may be subject to a 10% penalty. It is a retirement product that has limitations.

4. Fixed-indexed annuities

Many people do not realize that fixed-indexed annuities can be used as bond or CD alternatives, offering growth potential and principal protection on your cash value. In other words, fixed-indexed annuities do not have to be used as an income strategy. Many investors use them as an asset-preservation strategy to help hedge against downside market risk.

In a nutshell, here’s how they work. When the fixed-indexed annuity’s benchmark index, such as the S&P 500, goes up, the annuity’s cash value increases as well. When the benchmark index goes down, the principal of the annuity is maintained.

Assuming you picked an annuity with an annual reset, each year, a new “floor” is established. That means, unless you were to take a withdrawal or your annuity has fees associated with the policy, you cannot lose ground. Each year is a new year when the fixed-indexed annuity can grow its cash value or maintain the cash value of the previous year.

That said, I can’t emphasize the following enough: Not all fixed-indexed annuities are built the same. Just like some CDs may offer a 5% rate while others may offer a 0.5% rate, some fixed-indexed annuities have more growth potential than others. Your research and due diligence are incredibly important.

Here are a few words of caution for those considering using fixed-indexed annuities as a bond or CD alternative. Don’t add features you don’t need. If you are looking for potential cash growth and principal protection, don’t add on lifetime benefit riders or try to make your policy into a makeshift long-term care policy. The additional fees may compromise its original purpose of growth potential on the cash value with principal protection.

Also, many times an insurance company will have an annuity with and without a cash bonus offer. Annuities that offer a bonus, known as bonus annuities, tend to have less growth potential throughout the life of the policy. Because the bonus option may offer less growth potential, you may end up with less cash overall at the end of the policy, even when you calculate the cash bonus in the beginning. If you want your cash to grow, compare the options and their long-term growth potential.

I have found that fixed-index annuities, when sufficient shopping and research have been conducted, may offer more growth potential over the longer-term time horizon than CDs, Treasuries and fixed annuities. However, you must shop around and vet the insurance companies’ reputations, renewal rates and credit ratings. Make sure you also spend time understanding the benchmark index associated with any annuity. There are many new indexes focused on back-tested hypothetical results. That doesn’t make them bad. This means you may want to proceed with caution.

5. Cash value life insurance

Cash value life insurance, or permanent life insurance, can be used as a source of principal protection to help you through turbulent times. Even though some life insurance policies may have a cash component, they should not be considered investments.

You should only consider life insurance, whether it be indexed universal life insurance or whole life insurance, if your primary focus is to have a death benefit. The cash value associated with the policy, the tax strategies that can be implemented alongside the policy and so on should all be secondary objectives when considering life insurance. When funded and structured correctly, these secondary strategies can act as a nice complement to a retirement plan.

If you want to consider cash value life insurance, I would recommend exploring your options with an independent insurance agent who is also a licensed investment adviser and tax professional. The additional licenses may be able to help you explore a more comprehensive strategy with your policy than through a professional who is limited to only an insurance license. In other words, if their disclosure states they do not offer tax advice, how can they recommend an IUL for tax planning purposes?

Conclusion

Having principal protection can be helpful during difficult market conditions. If your portfolio is causing you to lose sleep, then maybe you are taking too much risk. I believe every investor should operate within their emotional and economic limits. Overall growth is important, but at what cost? Consider the potential benefits of having some of your portfolio’s principal protected.

If you are wondering how much should be protected, consider putting together your lifestyle plan first, then explore the tax and other strategies you want to implement. Once you understand your plan and the strategies designed to help bring that plan to life, you can start designing your portfolio.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A large percentage of Americans over 50, forlornly eyeing the balances in their portfolios, are getting worried they don’t have enough money to get them through retirement comfortably — or even get them through it at all, according to an AARP survey.

That’s a legitimate concern, because personal savings play an even greater role in a successful retirement than they once did. A generation or two ago, retirement for many people was nicely balanced on a three-legged stool — a pension, Social Security and savings.

Not everyone had a pension, of course, but for those who did, those monthly checks provided a solid boost to their finances and gave them more confidence that they could navigate their golden years without running aground.

Unfortunately, that retirement model has gone wobbly. Pensions have been disappearing for a while, and Social Security is a bit shaky, with benefit cuts becoming a possibility sometime in the not-so-distant future, if Congress doesn’t find a way to avoid a funding shortfall.

That means personal savings — an IRA, a 401(k) or some other type of account or investment — must pull more than its share of the weight. Around age 65, we all begin a race to see which will last longer — our money or our lives.

How to take action if you think you’ll fall short

Instead of despairing, it’s important to take action. The problem is clear: Do you have enough money? How can you create for yourself — and your spouse — regular income designed to last, not just a few years, but a few decades?

You’ve climbed to the summit of retirement after a lifetime of hard work while, hopefully, setting aside as much money as possible to pay for the years ahead. But the descent from that summit can be treacherous if you aren’t careful. Taxes, inflation, health expenses and other factors can cause your money to evaporate quickly if you don’t have a good plan in place.

With that in mind, here are a few retirement income strategies that can increase the odds you won’t run out of money:

1. Following the 4% rule.

Essentially, the 4% rule is a budgeting tool. The idea is, in your first year of retirement, you will draw no more than 4% from your retirement accounts. In each of the ensuing years, you will withdraw 4% plus enough extra to cover inflation.

As an example, if you had $1 million in retirement savings, the most you should withdraw that first year is $40,000. The goal is to provide yourself with a steady income while still maintaining a healthy account balance to preserve your money for the rest of your life.

One caveat to consider: If your money is in just a brokerage account and the market drops 20%, then when you withdraw your 4%, your account balance will be down a total of 24%. That would be difficult to recover from, so diversification is important to try to avoid significant losses that would undermine your goal of making that money last.

Also, while the 4% rule is a good guideline, it should not be a hard-and-fast rule. Individual needs and situations will vary. For some people, 4% may not be enough to provide the money they need to fund their lifestyle, so they might up that to 4.5%. For others, 4% might be more than they need — or more than their account can bear — so they could dial it back to 3.5%.

2. Creating joint income for life.

Here’s a way to create your own version of a pension that will provide income as long as you need it. Purchase an annuity and add an income rider to it, designating that the income be paid out for the duration of both your and your spouse’s lives.

Before you start taking the income, the annuity will grow based on a fixed rate, a variable rate or a combination of those.

At some point, you will activate the rider, and the annuity will begin paying a fixed amount that is guaranteed for life. If either spouse dies, the other spouse continues to receive the income.

3. Building a bond portfolio.

A diversified bond portfolio — with a mixture of government bonds, corporate bonds or municipal bonds — is another way to generate retirement income. Bonds pay interest, usually twice a year, so with a good mix of bonds, you can create income payments that arrive every six months. One key factor to be aware of: Interest rates have been high lately, and bonds are interest-rate sensitive. When interest rates go up, bond values go down.

Ultimately, there is no silver bullet for creating an income plan in retirement. But these strategies can offer a good foundation, especially when working in conjunction with one another.

So much of this, though, comes down to what is right for you. A financial professional can help guide you on whether these strategies — or something else — will give you the income you need so you can enjoy your retirement to the fullest.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Insurance products are offered through the insurance business Endependence Financial. Endependence Financial is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Endependence Financial are not subject to Investment Adviser requirements. Endependence Financial is not affiliated with the U.S. government or any governmental agency. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Investing involves risk, including the potential loss of principal. Any references to protection, safety or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. 2507395 – 8/24

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Fixed income is in fashion — for good reason. Current bond yields are historically high, and rate cuts are on the horizon, so locking in yields before they fall is a potentially attractive proposition.

True to their name, high-yield bonds offer an average yield of about 7.7% as of June 30, 2024. This alone is higher than the 7.4% annual long-term return on the S&P 500 since 2000 (based on Bloomberg data to the end of May 2024). So, a high-yield investment could mean locking in “equity-like” returns from the income alone.

But with credit spreads at about 3.1%, should investors wait for them to widen closer to their 5.2% average since 2000?

We think that might not work out — for three reasons:

1. 'Time in the market' might beat 'timing the market.'

Most investors try to “buy low and sell high.”

But, believe it or not, that might not be the best way to play high-yield bonds.

Why? Because income has been a larger driver of high-yield returns than price moves over the years. Since 2000, high-yield bonds earned +7.7% annually from income and -1.3% annually from price moves (according to ICE at the end of May 2024).

To earn income, you need to be invested.

We back-tested several hypothetical automated trading strategies. Each hypothetically traded between high-yield bonds and cash at certain credit spread triggers. To our surprise, almost all trading strategies underperformed a simple strategy of just holding the Bloomberg US Corporate High Yield Index, and none consistently outperformed it, even ignoring transaction costs.* Hypothetical results have inherent limitations and are overly simplistic, but it is an interesting exercise that you can try.

2. Lower credit spreads may be justified.

We think the high-yield market is less risky than it used to be.

Historically (alongside the loan market), high-yield was the primary venue for private equity firms to finance leveraged buyouts (LBOs). This meant a sizable proportion of highly leveraged issuers.

But private equity firms have increasingly turned to the private credit market instead. The private credit market’s share of LBO issuance (by number of deals) has soared from 60% in 2019 to 86% in 2023, according to Barclays Research. We believe this may help lead to structurally lower default rates in high-yield bonds.

Average credit quality in the high-yield market has also improved: About 46% of the Bloomberg US Corporate High Yield Index is BB-rated (the highest high-yield rating) today vs about 34% in 2000, according to Bloomberg at the end of May 2024.

Smaller issuers with less frequently traded bonds command an “illiquidity premium,” which is reflected in higher credit spreads. But managers with access to technologies such as credit portfolio trading can trade these issuers as easily as the big names, so they have less need to demand an additional premium.

3. Credit spreads may offer more than adequate compensation for default risk.

We often take polls of investors, asking what they think average high-yield default rates are. Usually, they respond with something between 3% and 5% per year.

It may surprise you that, by our calculations, the average annual default rate on the Bloomberg US Corporate High Yield Index (including distressed exchanges) has been 2.5% since 2005, and the average loss from default has been 1.4%.

As such, we think credit spreads of about 3% offer ample compensation for default risks. One caveat, though: Many high-yield strategies hold only 10% to 30% of the 2,000 U.S. high-yield bonds available, and concentrations like this may amplify the risk of default. For those considering a high-yield vehicle, check how many bonds they hold. Investors may need to turn to a systematic approach to access a fully diversified high-yield strategy.

Waiting might be the wrong call

All-in bond yields are made up of two components: government bond yields and credit spreads. Both have tended to move counter to each other, providing a mutual stability buffer.

When credit spreads widen (usually a result of economic concerns), government bond yields tend to fall, due to a “flight to quality” or market expectations that the central bank will need to cut rates to stabilize the economy. When credit spreads tighten, government bond yields sometimes rise, due to lower demand for low-risk havens.

As such, waiting for credit spreads to widen might not mean investing at significantly higher all-in yields. If you consider all-in yields attractive, now might be a good time to consider an allocation. We believe now is the time to consider locking in high-yield bond yields before rate cuts take effect.

* Where model or simulated results are presented, they have many inherent limitations. Model information does not represent actual trading and may not reflect the impact that material economic and market factors might have had on insight’s decision-making.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Even after two favorable monthly inflation reports, cash and bond yields remain high and steady. It continues to be a buyer’s market. Still, readers are often uncertain how best to proceed, particularly with new or rollover money. You may be tempted by a basic broad-based bond market index fund. But you can do better.

Your goal should be two guarantees: high yield to maturity and full recovery of principal. Neither is assured using index-based exchange-traded funds. An actively managed, go-anywhere fund from an ace manager such as Baird, Fidelity or Pimco will out-return the indexes over the years, but there is near-term price risk if managers mistime bets or if hostile reports on jobs or inflation or another trading signal rips into bond values. 

If your choices are limited within a 401(k) or other retirement plan, choose a short or ultra-short bond fund option, if possible. If not, stay with cash for now. The inverted yield curve, with short-term yields the highest, remains your friend and makes cash profitable and safe.

Looking ahead at bonds

But if you suspect cash yields will drift down and want to lock in the current rates without near-term price risk, my preference would be to infuse some dollars into individual bonds or into target-maturity funds or ETFs, such as Invesco BulletShares or iShares iBonds ETFs. If you have an account with Schwab, Fidelity or E*Trade, it is neither difficult nor costly to research, compare and buy single bonds. Then you, and not a fund manager or the Federal Reserve, control how much and when you get paid and the timing of repayment of the principal.

Normally the best method is to ladder maturities, arranging for parts (rungs) to mature in succeeding quarters or years so you both cement the best yields along the curve and know you will have money to roll over at specific times. You can use Treasuries, high-quality corporate, bank or utility bonds, municipals, high-yield bonds, or a mix of all of them. You can even request a brokerage’s bond platform to set it up for you.

I went to Schwab’s tool to ladder either Treasuries or certificates of deposit. Given the rate-curve inversion, one-year ladders have higher average yields than longer ones. A step stool of T-bills of three, six, nine and 12 months pays an average 5.25% to maturity; use CDs and you get 5.45% (as of May 31). A five-year ladder works out to 4.76% for Treasuries or 4.98% for CDs.

To beat that, of course, you can buy corporate bonds at a spread of one to two percentage points above Treasuries. If you navigate the bond listings, you can ladder one- through five-year BBB-rated bonds for an average 6% yield to maturity; I could recently order a five-step triple-B assembly from Synchrony Bank, Boeing, Ares Capital, Blue Owl and Boston Properties with an average yield to maturity of 5.98%, with none below 5.82%. It’s possible those bonds might flop around in value, but if your plan is to keep them to the end, that doesn’t matter — even if, say, Boeing were to be downgraded to junk status.

Or, you could use a mélange of BulletShares investment-grade, target-maturity corporate ETFs dated 2025 through 2029 for an average 5.3% — less than a BBB ladder due to its A and AA holdings. BulletShares charge just 0.1% and pay monthly, as oppsed to the semiannual interest payments from individual bonds. What matters either way is that you can roll over the principal on your own terms.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here. 

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Now that bonds offer decent yields, investors have been barreling into fixed-income mutual and exchange-traded funds. Taxable bond funds and ETFs pulled in net inflows (the sum of money deposited minus money that’s withdrawn) of $143 billion over the first three months of 2024, a near-record. 

But the array of bond fund yields can be confusing for investors trying to add a fund to their portfolio. In late March, for instance, the Schwab 1-5 Year Corporate Bond ETF (symbol SCHJ) boasted a 30-day SEC yield of 5.11%, a trailing 12- month or distribution yield of 3.16%, and a 5.28% yield to maturity. “If you look at all three, they can help create an overall picture of a bond fund,” says D.J. Tierney, a senior investment portfolio strategist at Charles Schwab Asset Management. 

Note that a bond fund’s yield is just one piece of the puzzle when you’re considering an investment in the fund. Investors should also understand the fund’s investment objective, fees and expenses, overall credit quality, potential risk of default on debt, and sensitivity to interest rates.

And be careful about confusing yield with income, says Tierney. Income is the coupon rate a bond pays — it’s the annual interest paid on a bond, and it is generally fixed throughout a bond’s life span. A bond’s yield, on the other hand, can be an indicator of the return an investor may receive each year over the life of a bond held to maturity, relative to the price of the bond. (Bond prices and yields move in opposite directions.) 

For example, a five-year Treasury note that matures in January 2029 pays a coupon rate of 1.75%. That’s the income, expressed as a percentage of the face value of the bond, you can expect to receive per year. But in late April, the bond yielded 4.74%, reflecting the expected return on your investment over the life of the bond, says Tierney, including interest payments and principal you may expect to receive when it matures, relative to the market price of the bond. 

That said, investors should think of a fund’s yield as “a starting point” when it comes to forecasting a total return, says Warren Pierson, co-chief investment officer of Baird Funds. It’s no guarantee. “A lot can go wrong before a yield turns into total return,” says Pierson. Use this guide to help you demystify bond yields and choose the right fund for your needs. 

30-day SEC yield

The Securities and Exchange Commission created the standardized calculation for the SEC yield, sometimes called the 30-day yield or current yield, to allow investors to compare one bond fund to another. Some even refer to it as the standardized yield. 

“If you’re comparing two different funds, this is the yield to look at first,” says Pierson (and it’s the yield cited most often in Kiplinger). Be wary if one fund sports a yield that’s measurably higher than that of a similar fund. “Rest assured there’s some additional risk,” he says. “You might not be able to determine what the risk is, but it’s there.” 

The calculation shows investors what they would earn, after expenses, over a 12-month period if the fund continued earning the same yield for the rest of the year. It annualizes the income distributed over the past 30 days and divides it by the fund’s net asset value at the end of the 30-day period. All SEC yields are net of expenses. A subsidized 30-day yield reflects fee waivers and/or expense reimbursements during the period; an unsubsidized figure does not adjust for waivers or reimbursements. (Some funds don’t have waivers. In those cases, unsubsidized and subsidized 30-day yields will be the same.) 

But there are caveats. The SEC yield is backward-looking — by 30 days, to be exact. What’s more, fund companies are not even required to disclose yield, but when they do, they must use the SEC-yield calculation. As a result, some bond funds disclose their 30-day yields only quarterly or monthly; others update them daily. It pays to be mindful of the “as of” date when you compare the SEC yields of funds.

Trailing 12-month yield (TTM yield)

Also called the distribution yield, a trailing 12-month yield is the ratio of the sum of all fund distributions over the past 12 months to the fund’s net asset value at the end of the period. 

The one-year look-back makes the distribution yield even more backward-looking than the 30-day SEC yield. As a result, during periods of dramatic interest rate shifts, the trailing 12-month yield can be misleading, says Tierney. “The first question investors should ask is, are we in a stable rate environment, or is it changing?” 

Moreover, the actual distribution-yield calculation is not standardized and thus may vary depending on the fund issuer.

Yield to maturity (YTM)

The yield to maturity of a single bond is the overall annual interest rate you will earn if you buy the IOU and hold it to maturity. 

But bond funds hold dozens if not hundreds or thousands of bonds, all with different maturity dates. So it’s not a calculation that all fund firms provide. Vanguard does, however. In late April, Vanguard Short-Term Investment-Grade had a yield to maturity of 5.4%. And Charles Schwab Asset Management (not to be confused with the online broker) provides it for its mutual funds and ETFs. 

Fidelity and Pimco, on the other hand, do not. Instead, you might see an “average maturity” or “effective maturity” for the fund, listed in years. That’s the average length of time until securities held by a fund reach maturity and are repaid. 

That stat might reveal more about interest rate sensitivity than it does about the fund’s yield, however. The longer a fund’s average maturity, the more the fund’s share price will move up or down in response to changes in interest rates.

Yield to worst (YTW)

Some bonds, such as municipal, mortgage and certain corporate bonds, are callable, meaning they can be “called in” and paid off early by the issuer before their maturity date. “You might have a bond with 10 years to maturity, but it’s callable in five years,” says Duane McAllister, senior portfolio manager at Baird Funds. 

Calling in a bond early can be a good tactical move for issuers; it cleans up a firm’s balance sheet, for starters. A yield to worst, then, is the lowest yield an investor can expect on a callable bond — call it a worst-case-scenario yield. 

Unfortunately, not all bond fund websites cite a yield to worst. But some do, including Baird. In late April, for instance, the Baird Aggregate Bond fund sported a portfolio average yield to worst of 5.08%. Says Baird’s McAllister, “That’s the worst- case scenario, but sometimes it works out to be better than that.”

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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