Bonds vs Mutual funds in Retirement

[TooTall]

Anybody here retired? What does your asset allocation look like? Do
you have bond mutual funds or bonds. I have bother and looking for
opinions.

[Bond Guru]

Fixed income should make up an increasingly large part of your
portfolio as you approach retirement and become more interested in
capital preservation rather than capital appreciation. Everyone has a
different opinion of what percentage, but a lot of people recommend
that your allocation to fixed income should gradually increase as you
approach retirement until it reaches 60% to 70% of your portfolio.

The performance of a laddered portfolio of individual bonds is almost
always going to outperform a bond fund containing similar asset
classes. The management fees are usually going to take a big chunk out
of your annual returns. If the fund is yielding 6% or 7%, a 1% annual
fee is significant. And, bond fund managers can't choose to pursue the
strategy of buy and hold until maturity that would maximize their
returns in fixed income. They are subject to the whims of the
investors. When the investors want to sell, they have to liquidate
some of their positions - usually in the worst market conditions. When
investors want to buy their fund, they usually must invest this money
when the market is high.

However, even with all of the downsides of owning bond funds, unless
you have enough money to build a laddered and diversified portfolio you
would be safer in funds. Others might put it higher or lower, but I
would recommend investing in individual bonds only if you have $250k or
more to allocate to fixed income. This allows you to purchase 5 or 7
different issues in a range of maturities in large enough blocks to be
liquid. If you live in a high tax state, consider municipal bonds to
increase your effective yield significantly.