An increasing number of Americans are withdrawing their investment funds from bond mutual funds. Some advisors consider this to be a mistake. It is felt that the fixed income assets such as international debt which pays higher yields should be the target of investors. Retirement income assets were invested in bond mutual fund at a rate of 245 billion from January 1, 2010 through the end of November, 2010. However, an outflow is developing now signaling the end of the bond bull market.
This is the beginning of a slow decline in bond fund investment, not a burst of the market. The fear of failures among municipalities is somewhat overblown. A rise in rates should guide retiring individuals to add higher yield securities such as emerging-market bonds to their portfolios. There are some fixed income managers such as Moss Adams Wealth Advisors of Seattle following this philosophy. Also, a number of investors are accepting the advice to use U. S. high-yield items that have durations of up to 4 years in their choices. It is a fact that these items are a high-risk with a rating below BBB by Standard Poors and Baa3 by Moodys Investor Services. Dollar backed government debt should be minimized because of budget deficits. In the place of these, seek market items in Canada, Mexico, and Brazil. This advice comes from Bill Gross, manager of the worlds biggest bond fund at Pimco.
For a better choice, shorter term corporate bonds could be used because they offer a shield from rising interest rates. There is a slight increase in the choice of taxable corporate bonds over tax-exempt bonds. Also, clients should be cautious of getting into items with long durations, those of longer than seven years. Market tools of shorter durations are less volatile and less effected by changes in interest rates. With bond mutual funds, the advice of an investment manager could aid the retiree in making the best choice for a retirement income fund.