Given their overall credit risk versus safer government debt, corporate bonds may not get enough exposure in a retirement portfolio. However, they can serve a purpose as long as investors are aware of their nuances.
“Corporate bonds can be a valuable building block in a retirement portfolio,” a Forbes article explained, noting that fixed income investors have the ability to lock in yields in the short- or long-term horizon versus other comparable income sources. That’s an ideal feature for retirees looking to maximize their passive income potential.
“That’s in contrast to instruments such as certificates of deposit and money market funds, for which the payouts decline when interest rates fall,” Forbes added further. “Another attractive feature of this asset class is the availability of specific markers to gauge the risk of individual bonds available for consideration.”
Of course, with the added yield comes additional credit risk along with the current economic environment where the U.S. Federal Reserve is tightening monetary policy — thus, rate risk is continued concern. This is what investors must be wary of when it comes to selecting individual bonds for a retirement portfolio.