Dividend Investors and Fixed Income Investments

A dividend portfolio in retirement must have at least a 25% allocation to fixed income. Despite the fact that I believe dividend growth stocks are a much better investment than fixed income, I still believe that bonds could offer some comfort for diversification purposes. While a bond portion of a portfolio would certainly lose purchasing power due to inflation, it would provide a portfolio with a cushion during market turmoil and during deflationary periods. If we were to experience higher inflation in the future, the dividend stock allocation should do its magic by lifting incomes and stock prices. If we have a repeat of the Great Depression or the Lost two decades for Japan, investors with a bond allocation should sleep better at night.

The way to actually invest in Treasuries is either by directly buying bonds or by investing through a bond fund or ETF. One way to purchase bonds is either directly by participating in Treasury Auctions or by buying bonds through your broker. While some brokers charge a small fee for bond transactions, others do not charge anything. If you decide to purchase your fixed income directly and hold to maturity, then you might consider laddering your bonds. Bond laddering means purchasing bonds with varying maturities, so that one is not overly exposed to interest rate fluctuations. Bond ladders could also be set up in a way that you can have bonds maturing at predetermined intervals of time. This allows investors to allocate bond proceeds to new bonds with the same maturities but different interest rates as the bonds which matured.

Source: Dividend Growth Investor


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