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3 Bond ETFs for Retirees

Christine Benz
Susan Dziubinski

Susan Dziubinski: Hi, I'm Susan Dziubinski for Morningstar.com. Morningstar's director of personal finance, Christine Benz, includes several bond ETFs in her model bucket portfolios for retirees. Specifically, bond ETFs fill the second bucket, which has a three- to 10-year time horizon. She is here today to discuss three of these ETFs.

Christine, thank you for joining us today.

Christine Benz: Susan, it's my pleasure.

Dziubinski: You suggest that retirees include a short-term bond fund in Bucket 2 of their portfolio just in case they've depleted the cash reserves in Bucket 1. What's your ETF pick there?

Benz: The pick is Vanguard Short-Term Bond ETF; the ticker is BSV. And it's a high-quality lowish-duration product. It tends to not move a lot when interest rates are on the move up as was the case in 2018. In 2018, it actually had a positive return even as many other bond products had losses.

Dziubinski: The lion's share of assets in the second bucket of the portfolio are dedicated to sort of a classic core bond approach ETF. What's your pick there?

Benz: Investors could easily use a total bond market index tracker in this slot. But the fund I've used is iShares Core Total USD Bond Market Index; the ticker is IUSB. It includes high-quality bonds, but it also includes a small component of lower-quality higher-yielding bonds. So, in that respect, it's a little better diversified than the total bond market trackers. Of course, those high-yield bonds will also come with a little bit of extra risk.

Dziubinski: And the last pick we're going to talk about today provides some inflation protection in the portfolio.

Benz: Right. So, this is Vanguard Short-Term Inflation-Protected Securities ETF; the ticker is VTIP. And the reason I like this fund is that some of the core TIPS funds, some of the core Treasury Inflation-Protected Securities funds, have a little bit of interest-rate risk. And so, they tend to be quite volatile when interest rates are on the move. This is a product that invests in short-term TIPS. So, it seems to be more or less a pure inflation hedge.

Dziubinski: Great. Christine, thank you so much for sharing your picks with us today.

Benz: Thank you, Susan.

Dziubinski: For Morningstar.com, I'm Susan Dziubinski. Thanks for watching.