Reviewing retirement account allocation

[rosarugosa]

I've been reviewing our retirement account allocations and expense ratios, and I have a question. DH wants his investments to be very conservative. He has a substantial percentage in a money market fund, which has a somewhat high expense ratio and earns little to nothing. There are a couple of bond fund options with lower ERs and a track record of much better returns. Aren't bond funds considered to be an adequate balance for equities? Or should there be a MM component to a conservative portfolio? I was thinking that the MM funds should be moved into bonds, but I also want to respect his desire for a conservative allocation (and his interest level in looking at this stuff is even lower than the rate of return on the MM account!)

[ApatheticNoMore]

I've been reviewing our retirement account allocations and expense ratios, and I have a question. DH wants his investments to be very conservative. He has a substantial percentage in a money market fund, which has a somewhat high expense ratio and earns little to nothing.

yea those kind of funds in retirement portfolios can be a ripoff, might be better with a CD in IRA (Roth or not) even. You could get slightly better returns, no expense ratio - sure rates are still low but we're talking better than what you have is all.


There are a couple of bond fund options with lower ERs and a track record of much better returns.

Bond funds are NOT the equivalent to cash substitutes like moneymarket accounts. They can fluctuate wildly and will if interest rates change. If interest rates ever go up they are going to tank. Sure cash equivalents are killing you with inflation, but there is no interest rate risk, there is no default risk. That can not be said about bond funds. Now if you want to buy individual bonds and hold them to maturity, even plain 'ol treasuries you eliminate most of those risks.


Aren't bond funds considered to be an adequate balance for equities?

considered I dont' know, this is way above my paygrade really :). If I knew the answer I would tell (I don't keep secrets for the elite, but I'm not a financial guru). But if they are considered an adequate balance to equities it is only when making ASSUMPTIONS about bonds always moving in an opposite direction from equities. That if stocks go down, bonds will go up. Is this even historically accurate? I doubt it - it's an empiracal question I just haven't researched. But even if it is historically accurate, can we really make the assumption that trends that have held for say the 20th century between bonds and stocks will continue to hold? Yea yea, I've read NN Taleb :)

[ApatheticNoMore]

By the way with bond funds, the short term bond funds are supposed to fluctuate less than longer term bond funds. If say a 401k has a short term bond fund it should be very clearly labeled as such. So I guess short term bond funds are more like cash than longer term bond funds but they still aren't cash, they can fluctuate. The rates will also be less than longer term bond funds.

[Dhiana]

I agree with Apathetic...The Money Market Funds are probably better off sitting in CDs.

How are your Money Market Funds gaining interest? I've seen some invested in REITs and have no guarantees to not lose principal in the account. Read the fine print.

My husband has zero interest in dealing with our investments and I find it easier to simply ask him what kind of companies or industries or new & growing businesses he would like to be invested in. Usually he'll just say a couple of S&P 500 type companies and that's the end of that conversation.

I keep it all simple as possible with Index Funds. Good Luck!