The 8 Best Bond Funds to Invest for Retirement

Fixed income investment tools continue to be an important part of retirees’ portfolios. Following you will find the 8 best bond funds to invest for your retirement.

Yields have fallen after the Federal Reserve cut interest rates and bought bonds to mitigate the economic impact of the pandemic. Because of this, retirees have to be selective about adding bonus funds.

Clayton DeGiacinto, managing partner and chief investment officer at Axonic Capital, says investors should consider both the bond’s yield and the rate of inflation before buying a bond fund.

If a bond’s yield is lower than the Consumer Price Index – a proxy for inflation – it means they have negative purchasing power because they are not outpacing inflation. “If they want to own fixed-income assets, they’re going to have to own bonds or securities that pay them a higher rate,” he says.

Following you will find The 8 Best Bond Funds to Invest for Retirement. We recommend you analyze the characteristics of each one so that you can choose the one that best suits your needs.

The 8 best bond funds to invest for your retirement

The 8 Best Bond Funds to Invest for Retirement

Invesco National AMT-Free Muni Bond ETF (PZA)

The PZA follows an investment grade index, which corresponds to US municipal bond debt.. Josh Simpson, a financial adviser at Lake Advisory Group, says his company uses the fund for the tax-free income it provides to retirees. “We’ve used it for years,” says Simpson. “It’s not something that moves around a lot price-wise, and it’s a consistent payer.”

PZA invests in bonds with 15 years remaining to maturity and has primarily income bonds. Due to the longer maturities, Yields are slightly higher than other municipal bond swap funds, with medium credit risk. It has an expense ratio of 0.28%, which is $28 per year for every $10,000 invested, and a return of 2.7%.

Vanguard Intermediate-Term Bond ETF (BIV)

Simpson says his company uses BIV on tax-deferred retirement accounts, such as individual retirement accounts. This ETF tracks an index that tracks the entire investment grade fixed income market, including US government, corporate and international dollar-denominated bonds. Maturities range from five to ten years. The fund has 2,040 stocks in its portfolio and $35 billion in assets under management. Year-to-date total return is 8%. Compared to similar bond ETFs, the BIV has a larger number of US Treasury notes because it takes a market-value-weighted approach and does not include agency mortgage-backed securities. It has an expense ratio of 0.05%.

Nuveen Select Tax-Free Income Portfolio (NXP)

Chuck Self, chief investment officer at iSectors, says he likes NXP for retirement accounts. For investors who are in the higher tax brackets and are not dependent on the daily movements of a fund, NXP may be a good option. These investors can take a little more risk on the market price.

Units in the fund have an average maturity of about 20 years, so it is subject to higher volatility. “Getting 3.5% tax-free is pretty nice, especially when you get less than 1% in the Treasury,” says Self. NXP is a low-leverage, closed-end fund, which is rare for a closed-end fund, he says. Self warns investors not to try to get extra yield from riskier bonds, pointing to the March selloff. “I encourage investors to think about the risk that any bond fund they buy could be hurt,” he adds.

First Trust Low Duration Opportunities ETF (LMBS)

The LMBS holds mortgage-backed securities with an average duration of less than three years. It holds a variety of bonds, including agency, non-agency backed and commercial mortgage-backed bonds. Self says it’s a good fund for investors worried about rising interest rates. With 90% more government securities, there are few credit risk concerns. He notes that LMBS’s total return was flat in the first quarter, making it one of the few non-Treasury bond funds that didn’t lose money during the market selloff. At 0.67%, it has a slightly higher expense ratio for an ETF, Self says, but notes that’s because it’s an actively managed ETF. It has $5.6 billion in assets under management and a return of 2.2%.

Fidelity Total Bond ETF (FBND)

This is a very actively managed ETF, the FBND uses the Bloomberg Barclays US Universal Bond Index as a way to guide its sector allocation and duration exposure.. Marc Pfeffer, chief investment officer at CLS Investments, says managers are trying to keep duration fairly neutral to the broader Bloomberg Barclays US Aggregate Bond Index, a key bond benchmark. “They have done a pretty good job in the midst of this crisis,” he says.

The FBND uses the same management team and strategy as the Fidelity Total Bond Fund (FTBFX). Holdings include up to 20% high-yield bonds, plus US Treasuries, mortgage-backed securities and companies, among other securities. The fund’s expense ratio is 0.36%.

PIMCO Active Bond ETF (BOND)

Pfeffer says BOND may be a good fit for a core fixed income holding company, as it has a diversity of holdings and strong performance.. It’s an actively managed ETF, so its expense ratio is higher than a benchmark ETF like the iShares Core US Aggregate Bond ETF (AGG), but the 12-month yield of 3.1% more than offsets the price of the ETF. 0.73% per annum.

It holds the bonds with a duration of around five years – short enough that if rates go down, investors are protected, but long enough to have a decent return. “It’s held up pretty well this year,” says Pfeffer, noting that he has a positive total return this year.

SPDR Blackstone/GSO Senior Loan ETF (SRLN)

SRLN was hit “very hard” during the spring crisis, but the fund has since recovered, says Pfeffer. Year to date, it is down 4.8%, although it is up 22% since March. For investors willing to take on additional risk with a view to higher returns, SRLN could be a good option. It is an actively managed bond fund that has exposure to non-investment grade and floating rate domestic and foreign loans.

The fund has a very short duration as it is reset every three months. Most of the price appreciation is likely to be in the return, but the yield is strong at 5.4%. The expense ratio is 0.7%. Investors “still have to be cautious in general, but if they’re willing to take risks, it’s a good place,” he says.

VanEck Municipal High Yield ETF (HYD)

If you’re a more aggressive investor looking for tax-free income, The 8 Best Bond Funds to Invest for Retirement, choose HYD. This fund tracks a market-weighted index of long-term, tax-exempt, high-yield municipal bonds. It has a duration of 6.97 years, with $2.8 billion in AUM, making it a very liquid fund. “Municipal defaults remain extremely low,” says Pfeffer. “However, there is a heightened sense of credit risk in the municipal market since the pandemic panic.” Pfeffer thinks the spring sale at the municipal market was overblown. Although the fund is down almost 6% so far this year, it is also up 38% in recent months. HYD’s 12-month yield is 4.4%, and its expense ratio is 0.35%.

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