3 Bond Funds That Every Retiree Should Own Now

  • Here are three bond funds that every retiree should own now:
  • Vanguard Total Bond Market Index Fund (BND): Provides exposure to the entire U.S. bond market.
  • Pimco Income Fund (PONAX): A high-yielding dividend payment is the main attraction of this bond fund.
  • Vanguard Total International Bond ETF (BNDX): Buy this fund to get exposure to the global bond market outside the U.S.
bond funds for retirees. - 3 Bond Funds That Every Retiree Should Own Now

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A bond is a fixed-income financial instrument that represents a loan made by an investor to a borrower such as a corporation or governmental. Bonds are typically used by companies and governments to help finance big projects or their ongoing operations. Bonds do not tend to fluctuate in price as much as stocks, and are considered to be more stable investment vehicles than equities. The stability of bonds, along with their high interest payments, are appealing to retirees. However, bond prices have faced downward pressure this year as interest rates have risen. But investors shouldn’t let this scare them off. Bonds remain an important part of portfolio management, particularly for retirees. Here are three bond funds for retirees.

BND Vanguard Total Bond $69.50
PONAX Pimco Income Fund $10.13
BNDX Vanguard Total International $47.06

Vanguard Total Bond Market Index Fund (BND)

Bonds written on a calculator with coins in the background

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U.S. bonds are widely viewed as the gold standard around the world. The chances of the federal government in Washington, D.C. or state governments defaulting on their debt obligations are considered extremely low, barring something unforeseen and highly unusual happening.

For this reason, investors should consider the Vanguard Total Bond Market Index Fund (NASDAQ:BND). This fund is one of the best bond funds for retirees because of its diversity, as it provides exposure to nearly the entire U.S. bond market, including more than 10,000 bonds in all.

While the fund includes a high number of triple-A rated government bonds, it also holds corporate bonds issued by companies such as Amazon (NASDAQ:AMZN) and American Express (NYSE:AXP).

As with all Vanguard products, the BND fund charges a rock bottom fee , Specifically, its fee is 0.03%, which is a fraction of the nearly 0.60% management expense ratio charged by other, similar funds. And the bond fund pays a quarterly dividend of 16 cents per share, which is a decent amount that can provide needed income for retirees.

Pimco Income Fund (PONAX)

Several U.S. Treasury Bonds stacked on each other.

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The Pimco Income Fund (MUTF:PONAX) is one of the most popular bond funds with investors. It currently has about $120 billion of assets under management. Its main attraction is the 4.55% interest rate that the fund offers to shareholders. The expense ratio is a little higher at 0.90%, and an initial investment of $1,000 is required by the PONAX fund. But investors get an annual distribution that has ranged anywhere from 86 cents in 2015 to 43 cents last year depending on market conditions.

Managers of the Pimco Income Fund pick bonds from different asset classes on a regular basis to ensure that they respond to changing economic and market conditions. This approach helps ensure that the PONAX fund is able to maintain its high distributions to shareholder.

The fund also provides a decent five-year annualized return of 5.11%, which places it in the top third when it comes to performance and investors’ returns.

Vanguard Total International Bond ETF (BNDX)

Corporate Bonds

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Vanguard makes the list again because the investment firm offers a great variety of bond funds at extremely cheap costs to investors. And the Vanguard Total International Bond ETF (NASDAQ:BNDX) is a great option for investors looking for international exposure in their portfolio. BNDX provides diversification by holding international investment-grade government and corporate bonds from reliable countries that are U.S. allies such as Canada, the United Kingdom, France, Germany, and Australia.

One advantage of foreign bonds is that they often  provide better yields than domestic U.S. bonds. International fixed-income instruments can also act as a hedge against the remote possibility that the U.S. defaults on its debt obligations.

BNDX is hedged against the U.S. dollar using derivatives, and the bonds held in the fund are denominated in different currencies, i.e. Canadian dollars, British pounds, Euros, etc. The fund has an ultra-low management expense ratio of 0.07% and pays a quarterly dividend of five cents a share.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.


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