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  1. #1

    I don't understand my fin.

    my advicor says for my age and safety I need more diversification. Currently I have a 75percent dividend/div. growth allocation. He says I need more bonds. If interest rates go up in June and the price of bonds go down why would I buy any bond funds now. Should I wait.? Is the bond market in turmoil? and what about negative interest rates and the flattening of the yield curve?

  2. #2
    I assume you are talking about a retirement portfolio?
    How many years are you away from retirement?
    When you retire will you have pensions/SS to cover your income needs or will you need to start withdrawing from your portfolio immediately?

    The problem with an all stock portfolio is that it can rapily drop in value and take years to recover. When you are young you have time for that; when you are less than a decade from retirement, you could end up delaying your retirement for 5-10 years if the stock market misbehaves at the wrong time. A common way to mitigate this problem is put a percent of your portfolio into high quality corporate and government bonds which are much less volitile and can move the opposite direction of stocks in a downturn. It is very common for retirees to have a 40-60% stock, 60-40% bond portfolio.
    You can google "sequence of returns risk" to learn about this subject more

  3. #3
    Thank you for your reply. The problem is now I have to sell some good paying dividend stocks to allocate to bonds. That is hard for me to do with the uncertainty in the bond market.

  4. #4
    kelly14, Without knowing more about you (such as your retirement age), your financial goals (income needs), and your portfolio (taxable or tax-deferred account[s], dividend-paying stocks, any cash?), it is difficult to second-guess your financial planner.
    Many of us invest in dividend-paying stocks like AT&T (T) because they yield about 5%. I do not plan to sell it.
    Generally, if I could get more yield from a floating-rate bank-loan fund (like SAMBX@4.73%/SFRAX@4.43%) in a rising-rate environment than I could from a stock yielding less, I might think about selling that stock and buying an ETF or mutual fund.

  5. #5
    Without a better understanding of your situation (I asked 3 questions) it is hard to know if that is what I would do in your situation. It depends on the size and contents of your portfolio and your financial plan. There are people who just own income producing stocks and live off the income streams. If that is your plan then perhaps your advisor is wrong and you are right.
    I would not move into bonds quickly with the uncertainty. Slow financial decisions and slow transitions are often less stressful and help let you sleep at night.


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