Bonds: Pimco Total Return
When you think about bond investing, one firm comes to mind above all others: PIMCO, with its iconic manager, Bill Gross. So if it’s offered, you should consider adding the PIMCO Total Return (NYSE:PTTCX) bond fund in your 401k portfolio for low-risk income as well as a steady foundation of growth.
Bonds don’t return as much as investments in stocks, especially in this low-interest-rate environment. However, they are much more reliable in their returns — especially when you have someone like Bill Gross ranking the bonds based on where he can get the best yield without sacrificing a risk of default. The Total Return fund invests only up to 10% of its portfolio in “junk” bonds, which offer higher yield but greater risk, so this is one of the most stable income investments out there.
The expense ratio is a decent 1.6% — about $160 on $10,000 invested — and many participants must pay a transaction fee. However, the performance of this fund is well above its peers and could be worth the price of admission.
If you can’t add the PIMCO fund, however, I strongly advise having some kind of income fund via investment-grade bonds in your portfolio — particularly if you are close to retirement and worried about capital preservation as much as growth.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.