When it comes to generating income in retirement, or for those
that are nearing retirement age, bonds are an important part of
the equation. For many folks that are well into retirement,
conventional wisdom has been that the bulk of their fixed income
portfolios belong in U.S. Treasuries due to perceived safety.
That perceived safety increases the allure of an ETF such as
the iShares Barclays 20+ Year Treasury Bond Fund (NYSE:
). TLT, which has an average maturity of 27.6 years, is alluring
to conservative investors because its 0.15 percent expense ratio
and a trailing 12-month yield of 2.71 percent. These days, that
is actually decent.
The iShares Barclays Treasury Inflation Protected Securities
Bond Fund (NYSE:
) is another popular option for the same reasons. TIP is
perceived to be safe, the expense ratio of 0.2 percent is fair
and the trailing 12-month yield of almost two percent is better
than a money market account.
The good news for retirees looking for income from bonds is
that there are scores of
on the market today that provide higher yields and more income
than Treasury funds without the burden of taking on large amounts
SPDR Barclays Capital Long Term Corporate Bond ETF (NYSE:
The SPDR Barclays Capital Long Term Corporate Bond ETF represents
a credible alternative to the larger iShares iBoxx $ Investment
Grade Corporate Bond Fund (NYSE:
). The average maturity of LWC's holdings is almost 24 years,
nearly double that of LWC's holdings. As such, LWC has a 30-day
SEC yield of about 4.2 percent compared to 2.74 percent.
Over 53 percent of LWC's holdings are rated at least A and the
fund has the same expense ratio, 0.15 percent, as LQD.
PowerShares Emerging Markets Sovereign Debt Portfolio
Several years ago, recommending an emerging markets bond fund to
retirees may have been viewed as heresy. That has changed as the
sovereign debt ratings of many developing nations have risen
while developed markets such as France, Japan and the U.S. have
lost the prestigious AAA rating.
That said, owning PCY does mean incurring more risk than
holding TLT or TIP. PCY's lineup is more in investment-grade
territory, but 54 percent may not be enough for some investors. A
30-day SEC yield of almost four percent and a monthly dividend
help compensate investors for the added risk. So does capital
appreciation. Over the past two years, PCY has returned 25.4
percent, including dividends paid, with volatility of just 5.7
iShares S&P National AMT-Free Municipal Bond Fund
A municipal bond ETF such as the iShares S&P National
AMT-Free Municipal Bond Fund is best kept in a taxable account so
that investors can withdraw funds before retirement if need be.
Municipal bonds are attractive because these bonds are usually
exempt from federal taxes and many are not subject to state and
local taxes, either.
The trade-off with MUB is that the ETF's trailing 12 month
yield is below three percent. On the bright side, investors gain
the benefit of a monthly dividend and a portfolio where about
nine out of 10 holdings are rated at A- or higher.
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