Fixing Up Your Fixed Income

Piggy SafeDespite the comforting sound of “fixed income,” the part of your portfolio that contains bonds can be surprisingly volatile or risky, if you don’t pay attention.

Here’s how to run a safety-check on your fixed-income allocation.

Get the fixed income options from your retirement account provider (we’ll focus on bond funds for now).
Plug each ticker symbol into the quote box at the top of the home page. (Morningstar is an independent, well-respected investment research and ratings firm.)

Basically, if you are looking for security from your bond funds, you want to focus on funds with holdings that have a shorter maturity date—because they will be less affected by interest rate changes. Hence, less risk.

And you want the highest credit rating possible. Naturally.

Compare Vanguard’s Intermediate Bond Fund Index (VBILX) to the Short-Term Treasury Investors fund (VFISX). Scroll down to the boxy-looking “style map” on the lower right of the fund analysis page.

VBILX has an average maturity of just over seven years, and it has an A credit rating.
VFISX has an average maturity of about two-and-half years, and a AAA rating.

True, shoring up the fixed-income part of your allocation isn’t a recipe for eye-popping returns. But it can prevent the need for blood pressure medication later on.

Grow slow. What are your fixed income holdings?

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