Once I have the capital, I’d like to expand my investments. Currently, I own 43 shares of VFIAX and am considering adding international funds (likely VTIAX) and bonds (possibly VGIT).
I’ve seen recommendations for bond investments based on age. I’ll be 25 soon and am unsure if I should prioritize bonds or international funds for my next investment. What’s a good age or time to begin including bonds in a portfolio?
At 25, there’s no need for bonds if your goal is long-term capital growth. Many people skip bonds entirely at this stage and focus on stocks.
You might consider waiting until you’re about five years from retirement to add bonds. However, it depends on your risk tolerance. Some people prefer bonds earlier to reduce volatility, like in a ‘three-fund’ portfolio.
I didn’t add bonds until I was 62, focusing earlier on growth and capital appreciation. Now I use them for income in retirement, but I think target date funds often shift to bonds too early.
At 25, you don’t need bonds. I’m in my late 50s, and we’re only 15% in bonds, which breaks the traditional rules. Consider broadening your U.S. stock exposure with something like VTSAX, which covers the whole market beyond the S&P 500.
If you plan to retire at 67, there’s little reason to invest in bonds before age 50. If you eventually have more than enough saved for retirement, you might not need bonds at all.
Bonds provide stability and steady income but aren’t necessary at your age. At 25, your focus should be on long-term growth, which stocks provide. Stocks are riskier in the short term but tend to deliver higher returns over time.
Bonds are more useful for balancing a portfolio closer to retirement. With decades ahead of you, you can afford to ride out market downturns and prioritize growth.
A common rule is 120 minus your age for bond allocation. At 25, that would mean a maximum of 5% in bonds. Personally, I plan to wait until my portfolio grows larger or until I want to reduce risk, probably around my mid-40s. It depends on your goals and risk tolerance.