Listener Question: Can I Go a Few Years Without Contributing to My Bond Fund? | Summary and Q&A

TL;DR

A 43-year-old investor wants to know if it's okay to stop contributing to their bond fund and reallocate their investments towards a stock index fund, and if dollar cost averaging applies to bond funds.

Key Insights

• 🖐️ Risk tolerance and long-term goals play a significant role in determining appropriate investment allocations.
• 🍉 Stocks tend to have better outcomes over the long term compared to bonds.
• 😘 Bonds have historically low returns, do not keep up with inflation like stocks, and can be riskier in the long run.
• 😘 Dollar cost averaging works with bond funds, but the current low interest rates make stocks a more attractive option.

Transcript

next question comes to us from Chad Chad rights I have an intermediate-term Treasury fund I'm pretty sure I fell asleep after like the second word I fell asleep during I have an intermediate-term Treasury fund and total it gets better and total bond market index fund in my retirement accounts IRA and 401k based on my age 43 I am currently too heavi... Read More

Questions & Answers

Q: Should a 43-year-old have money in bonds?

It depends on the investor's risk tolerance and long-term goals. While research shows that holding only stocks for a 20-year period tends to lead to better outcomes, diversifying with bonds can help mitigate risk.

Q: Does dollar cost averaging work with bond funds?

Yes, dollar cost averaging works with any investment that is volatile, including bond funds. While bond funds are not as volatile as stock funds, they do react to interest rates and the economy.

Q: Is it okay to stop contributing to a bond fund for 1-2 years?

Given the current low interest rates and historically low returns on bonds, it could be a good idea to reallocate investments towards stocks. However, the decision should consider the individual's risk tolerance and long-term goals.

Q: Can dollar cost averaging be used to invest in higher-yielding bonds?

Yes, dollar cost averaging can be utilized to invest in higher-yielding bonds over time. As existing bonds with low interest rates mature, one can purchase new bonds with higher yields.

Summary & Key Takeaways

• The investor, aged 43, wants to reallocate their investments and stop contributing to their bond fund in favor of an S&P 500 index fund.

• The question of whether a 43-year-old should have money in bonds depends on their risk tolerance and long-term goals.

• Bonds have historically low returns and don't keep up with inflation like stocks do, making them riskier investments in the long run.