Any mutual fund that delivers regular income payments can be a retirement income fund. Dividend funds, balanced funds and bond funds are three compelling income options, although there are a range of other fund types that can provide retirees with cash flow.
Arranging a dependable stream of income is a key part of your retirement plan. Income should come from multiple sources, like Social Security, personal savings, annuities and even part-time work. Mutual funds that generate regular cash flow—so-called retirement income funds—can also play a big role.
A balanced fund owns a portfolio that includes both stocks and bonds. The fund aims to balance its potential growth by owning stocks with the stability and income generation of fixed-income assets.
Balanced funds have a target allocation between stocks and bonds, which is usually stated in the fund’s prospectus. The allocation can vary depending on the fund’s objectives and strategy. A very common target allocation is 60% stocks and 40% bonds.
Bond mutual funds own fixed income assets, like government bonds, corporate bonds, municipal bonds, or a combination of these. When you invest in a bond, you are lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at maturity.
By investing in a broad portfolio including hundreds or even thousands of assets, bond funds spread your investment risk across different issuers, sectors, maturities and credit ratings. By holding a diversified portfolio, managers reduce the impact of any individual bond’s performance on the overall fund.
Dividend Funds
A dividend fund owns the stocks of companies that regularly pay dividends to their shareholders. They aim to generate income from the dividend payments, and also deliver increased value from capital appreciation of the stocks.
Public companies that pay dividends are typically mature and stable firms with a history of consistent payouts. Dividend funds often target stocks with relatively higher dividend yields, seeking to provide investors with attractive income potential.
Vanguard High-Yield Corporate Fund Investor Shares
The Vanguard High-Yield Corporate Fund (VWEHX) takes the top spot on our list of the best high-yield bond funds for May 2024 thanks, largely, to its low expense ratio.
Conventional wisdom holds that when you hit your 70s, you should adjust your investment portfolio so it leans heavily toward low-risk bonds and cash accounts and away from higher-risk stocks and mutual funds. That strategy still has merit, according to many financial advisors.
Age 65 – 70: 50% to 60% of your portfolio. Age 70 – 75: 40% to 50% of your portfolio, with fewer individual stocks and more funds to mitigate some risk. Age 75+: 30% to 40% of your portfolio, with as few individual stocks as possible and generally closer to 30% for most investors.
The Vanguard High-Yield Corporate Fund is the company's top performing bond fund over the past decade. It features a high-yield, intermediate-term fixed income portfolio.
Cash: 8% of assets are kept in cash for years 1 and 2 of retirement. Bonds: 32% of assets are kept in bonds for years 3-10 of retirement. Stocks: 60% of assets are kept in stocks for year 11 and beyond.
Bottom Line. Moving 401(k) assets into bonds could make sense if you're closer to retirement age or you're generally a more conservative investor overall. However, doing so could potentially cost you growth in your portfolio over time.
As a whole, analysts are optimistic about the outlook for stock prices in 2024. The consensus analyst price target for the S&P 500 is 5,090, suggesting roughly 8.5% upside from current levels.
Fidelity remains our top overall choice for best online broker as well as our choice as the best broker for low costs and for ETFs this year. In addition, Fidelity earned top ranks as the best broker for cash management, which are new additions to our best online broker and trading platforms awards this year.
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Introduction: My name is Cheryll Lueilwitz, I am a sparkling, clean, super, lucky, joyous, outstanding, lucky person who loves writing and wants to share my knowledge and understanding with you.
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