7 Bond Funds to Anchor Your Retirement Portfolio

Retirement savers need to weigh interest-rate and inflation risks when structuring their investments. These seven bond funds help them do just that.

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For many investors, bonds and bond funds are synonymous with income. Stocks are for growth, and bonds are designed to throw off regular coupon payments.

But in a world where the 10-year Treasury note yields only 1.5% after a major spike, the notion of bonds as purely income vehicles doesn't make a lot of sense.

That's perfectly fine because that was never the role bonds were designed to play in a modern retirement portfolio.

"The 'income' aspect of fixed income tends to be what gets the most attention,” says Douglas Robinson, founder and president of RCM Robinson Capital Management LLC, an investment advisory firm based in Mill Valley, California, specializing in Treasury funds management and the healthcare and pension management needs of local governments. "But a bond portfolio, if structured correctly, can play a critical role in reducing volatility and drawdowns that is ultimately far more important.”

The key, of course, is "structured correctly." Bonds have their own risk factors, such as interest-rate risk, sensitivity to inflation and, in the case of non-Treasury bonds, default risk. Investors will need to weigh these risks when putting together a portfolio of bonds or bond funds.

Today, we're going to do exactly that. We're going to pick apart the universe of bond funds and ETFs to build the ultimate safety portfolio. While each fund has its own unique set of risks, including them in a diversified portfolio should reduce volatility and help you sleep a little easier at night.

With that in mind, here are seven of the best bond funds for retirement savers to add to their portfolio. Specificially, we're highlighting shorter- and medium-term funds that can help round out the more defensive aspects of a fixed-income retirement allocation.

Data is as of Sept. 27. SEC yields reflect the interest earned after deducting fund expenses for the most recent 30-day period and are a standard measure for bond and preferred-stock funds.

Charles Lewis Sizemore, CFA
Contributing Writer, Kiplinger.com

Charles Lewis Sizemore, CFA is the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor based in Dallas, Texas, where he specializes in dividend-focused portfolios and in building alternative allocations with minimal correlation to the stock market.