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3 Ways Retirees Can Save Themselves From a Falling Bond Market

Low interest rates have hurt retirees by sapping the income from their investment portfolios. But now that interest rates are rising, retirees have found that their bond holdings are losing value. How can retirees protect themselves against falling bond prices?

In the following video, Dan Caplinger, Director of Investment Planning at The Motley Fool, discusses three things retired investors should consider to minimize losses from their bond holdings. Dan notes that many retirees use long-term investments even though they have short-term needs, and he urges retirees to match up the time horizons of their portfolios more closely with those financial needs. Second, retirees should take a look beyond the safest fixed-income investments from the U.S. Treasury and federally insured banks to consider alternatives like corporate bonds. Dan notes that iShares Core Total U.S. Bond Market (NYSEMKT: AGG  ) has a mix of all different types of bonds, including both Treasuries and corporates. On the other hand, iShares Investment Grade Corporate (NYSEMKT: LQD  ) and iShares High-Yield Corporate (NYSEMKT: HYG  ) are focused on corporate bonds, with their respective focuses on different ends of the creditworthiness spectrum.

Finally, Dan suggests that retirees consider dividend stocks to provide part of their income. The high-yield dividend stocks that Vanguard High Dividend Yield (NYSEMKT: VYM  ) and similar ETFs own pay higher income than many bond investments. Moreover, unlike bonds, dividend stocks often offer growing payouts over time, as the stocks that you'll find in Vanguard Dividend Appreciation (NYSEMKT: VIG  ) show. Dan concludes by noting that stocks can't entirely replace bonds and that avoiding losses in a rising-rate environment is next to impossible, but smart moves can mitigate your potential fixed-income losses.

Don't Give Up on Investing
The bond-market massacre lately has further discouraged millions of Americans, many of whom have chosen bonds over stocks ever since the stock market meltdown in 2008 and 2009. Those who have stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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