This Surprising Bond Investment Has Some Smart Benefits

Retirement investors need to focus on growth in their investment portfolios, but it's also important to have some less volatile investments to reduce overall risk. Bonds used to fill that role quite nicely, yet with bonds still offering poor interest rates, it's been hard for retirement investors to find the returns from bonds that they'd like to see.

In the following video, Motley Fool investment planning editor Lauren Kuczala talks with longtime Fool contributor and retirement expert Dan Caplinger about a surprising income investment option: savings bonds. As Dan notes, although most bond investments face the potential for dramatic falls in price if interest rates rise, savings bonds are guaranteed not to lose value regardless of what happens with rates. Moreover, with valuable features like inflation-tracking, certain types of savings bonds will help you preserve the purchasing power of your investment. Dan runs through what you need to know about savings bonds, including annual limits and other features that you should be aware of, before deciding whether to make them part of your overall retirement investing strategy.

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This article was updated on August 12, 2015.

Read/Post Comments (9) | Recommend This Article (14)

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  • Report this Comment On August 11, 2014, at 9:32 AM, Babcockk1 wrote:

    Good article, but now recommend something other than losers. Bonds, CD's, MM Funds, US Savings Bonds, that's old school, and do nothing but lose money if you take inflation in the equation. What's safe about that? There is imperial evidense, historical data of great paying dividend stocks, by using a Stop Loss that is how I plan on making money and protecting my investments. I don't want advise that losses money or someone who recommends using Annuities as a source of income. I wish to see your authors address my comment? Prove me wrong, please.

  • Report this Comment On September 30, 2014, at 10:58 AM, jomaco wrote:

    Waiting with you for further clarification?

  • Report this Comment On November 07, 2014, at 1:11 PM, melvin33888 wrote:'s been a long time waiting. Dissapointed they haven't responded by now.

  • Report this Comment On November 19, 2014, at 10:10 PM, LBGinvestor wrote:

    This is a 2013 posting.....I thought I was purchasing a service that was more up to date than a year + old advice

  • Report this Comment On November 21, 2014, at 1:49 PM, Brazilianaire wrote:

    Actually, this is pretty sound advice for those who are closing in on retirement in the next 10 years or so. These alternative bonds sound nice for someone who may have to liquidate the position for retirement in a few years but still wants a return to beat short term CDs. Another thing for those people to consider would be buying bonds that come due within their time horizon - that way rising interest rates wouldn't affect them if held to maturity (then you're just looking at an opportunity loss, instead of a real one). I tend to think that inflation in the short term is far less significant than long term and harping on the 'real' rate of return for investments less than 5 years is kind of missing the forest through the trees.

    Babcokk1, I'd be careful with dividend stocks and your stop loss (or trailing stop) strategy - even though you set a low band price to activate your stop, all that price does is activate a market order (which only guarantees execution and not price). If that stock is moving south fast, you could end up selling waaay below what you wanted. Even if you had a stop limit, that executes a limit order, which may or not be filled (especially if you set the limit price too close to the stop trigger). So, you still have some downside risk - not to mention some potential unplanned tax liability if these stocks aren't in a qualified retirement account. Savings bonds, CDs, MMFs, fixed annuities, etc are low return, but their most important feature is that they cannot LOSE money (well, i guess they could, but if they did we'd have bigger problems on our hands like alien zombie robots). As you get close to retirement, the number one name of the game is 'don't lose what you already have'. Risk that nest egg late in the game for a couple extra percentage points, and you risk having to work for extra years.

    BTW, annuities are an excellent source of guaranteed income for life - for a portion of your retirement needs, anyways. You just need to make sure you choose a reputable insurer and, this is the most crucial part, annuitize it at the correct time with an income option that best fits your needs (and not just the highest payout). This, along with social security, can knock out a bigger fixed portion of your monthly retirement needs, which will lessen the amount of savings you'll need to liquidate and spend. This, in turn, will extend your time horizon for those savings and allow for a more aggressive investment strategy which, it appears, you have a penchant for. The best part about annuities with life income is that you get paid for the rest of your life, so if you stay healthy and live longer than expected, you could make much more than was originally calculated. How many other investments actually reward you for staying alive?

  • Report this Comment On March 12, 2015, at 10:47 PM, Jazzbassman wrote:

    How about the guy that has early SS retired and wants to preserve/secure their 401K? Would the bond market be a way of preserving this verses their 401?

  • Report this Comment On April 03, 2015, at 9:47 AM, Wolfen682 wrote:

    Remember to have annuity of some sort in retirement as a bottom line to pay for food electric gas water - Income is king in retirement - You can always invest in Bonds Equities etc Housing - But remember to cover the base line with income - ...

  • Report this Comment On August 04, 2015, at 5:12 PM, Bmcwhite wrote:

    Am turning 70 so I have to start taking out of my 4

    O1' how do I determine what is best to pull from

  • Report this Comment On March 17, 2016, at 3:37 AM, AngelaLuis wrote:

    This blog can help me a lot with good information which always useful for me. <a href="">UK Best dissertation Writing Services</a>

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