Investors Need More Education on Using Bonds in Retirement Planning

Fixed income manager BNY Mellon Investment Management says more must be done by financial advisors to educate clients on the use of fixed income when it comes to planning for retirement.

“Investors who work with financial advisors are more likely to believe they have a good grasp of fixed income compared to those without an advisor: 64% who’ve worked with one say they understand fixed income “a lot” or “somewhat” compared to 35% of those without an advisor, according to a report from BNY Mellon Investment Management, which notes that it’s the third-largest fixed income manager by assets,” wrote Alex Padalka in Financial Advisor IQ. “And 64% of investors who’ve worked with an advisor say they’ve allocated some funds toward fixed-income products compared to just 25% of those who haven’t worked with an advisor, BNY Mellon found through a national research study of 2,007 Americans aged 18 or older conducted in July.”

With the 60-40 strategy, 60% equities allocation and 40% bond allocation, starting to come into question, this could further substantiate why investors are beginning to shy away from bonds. Nonetheless, assets like ETFs are still garnering capital with more investors diving into bond funds.

“Given the importance of fixed-income investing in a balanced portfolio — especially as it relates to retirement planning — the survey suggests a real opportunity for financial professionals to help improve investors’ appreciation of fixed income,” said Andy Provencher, head of North American distribution at BNY Mellon Investment Management. “Often, that means speaking plain and helping clients appreciate and match their individual goals and needs with the full range of fixed income solutions available to them.”

Investors can get started with bond funds with the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG). AGG has been the go-to fund for investors who want that core bond exposure, and with close to 20 years under its belt (not to mention $67 billion in assets under management), AGG is still a great option.

Fund facts:

  • AGG seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index.
  • The index measures the performance of the total U.S. investment-grade bond market.
  • The fund generally invests at least 90% of its net assets in component securities of its underlying index and in investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of its underlying index.

Reasons to use AGG:

  • Broad exposure to U.S. investment-grade bonds
  • A low-cost easy way to diversify a portfolio using fixed income
  •  Use at the core of your portfolio to seek stability and pursue income

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