No. of Recommendations: 1
I highly doubt I will see a return of 5% on bond funds in the coming years. When interest rates go up and bonds look attractive I can take my money out of the fixed account and put it into the bond fund. I don't see any problem with guaranteeing at least a small portion of my portfolio, even if it does limit my upside potential a bit.

Bonds and bond funds are two very different beasts. Bond funds make a big chunk of their money from trading bonds rather than buying and holding them. When interest rates go down you can sell your bonds for more, because all you have to do is beat the current yield. But when interest rates go up bonds that are already held are worth less. If you want to convert one to cash you have to sell it at a loss. Bond funds can post losses. I don't see much more money to be made in bond funds right now. I can't see interet rates going much lower. A lot of people who fled stocks for bonds are going to be in for a shocker when interest rates start to rise.

That said. I think your allocation is fine. You are taking on the right amount of risk for you. But as others have said reallocate yearly to keep your portfolio balanced 85/15. Also be sure to reassess your risk tolerance every year or two just to be sure you like where you stand.

Also be aware of the fees and restrictions on your plan. Fees can take a big chunk out of those compounded returns.

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