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Author: foobar73 Big red star, 1000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35932  
Subject: Re: Early retirement bond allocation Date: 12/15/2001 10:47 AM
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For my situation, T Rowe Price recommends an investment allocation of 40% stocks, 40% bonds, and 20% short-term securities (presumably MMF or short-term bonds. I prefer mutual funds over individual securities.

Within the 40% bond category, they recommend 28% investment grade, 7% junk, and 5% international. How do I go about selecting the specific bond funds for these three? We're talking about $40k for the bond category. Would three mutual funds be appropriate, one each for investment grade, junk, and international?

I guess a broader question is, since bond prices are so high, should I hold off putting ANYTHING into bond funds for awhile?

Personally, I think it's somewhat silly to consider diversifying your bond holdings into junk and international on such a small balance. Essentially, you're looking at $7k in junk and $5k in international. With these amounts, not only are you near many funds' minimum balance requirements, but the potential gains you stand to make are relatively small. If, somehow, you made an additional 2% on each of these over an ordinary domestic bond fund (unlike stocks, when it comes to bonds 2% is a significant difference), you're only looking at a gain of $240. This might easily be eaten up in additional costs for such funds. Far simpler would be to just buy a single domestic bond fund and leave it at that. This also makes your job of rebalancing the portfolio easier.

I notice your message subject reads "Early retirement". If you are indeed contemplating early retirement on this portfolio as it stands, you might want to reconsider. At $40k for a 40% bond position, this would suggest the total portfolio is only $100k. This, I suspect, would be extremely difficult to retire on for the vast majority of people.
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