You Owe It to Yourself: Why Long Bonds Could Help Save Your Retirement Plans
Long-term bonds offer lackluster returns and gut-wrenching price swings. And today they get our seal of approval.
In fact, for some folks, there's arguably no safer investment, as pension funds have discovered. The reason: If you're approaching retirement, the big danger is that the cost of generating retirement income will spike higher -- and owning long bonds is a great way to hedge that risk.
Keeping promises. To understand why, imagine you own a small business with a handful of employees, and you have promised them all pensions of $1,000 a month.
Your plan: When they retire, you will buy them each an immediate-fixed annuity. That will mean handing over a wad of money to an insurance company, which will then send your retired employees $1,000 every month for life.
Want to make sure you have enough money to buy these annuities? True, stocks will likely deliver the highest returns, while short-term bonds will give you a decent yield without much volatility. But your annuity costs won't fluctuate with the value of stocks or the price of short-term bonds.
Instead, the cost charged by the insurance company will vary with the yield on long-term bonds, typically defined as those with more than 10 years to maturity. "If you have a slice of your portfolio in long bonds, that will give you some protection," says Paul Pasteris, a senior vice president at insurer New York Life.
Suppose interest rates drop sharply just before one of your employees retires. The bad news is, the plunge in bond yields means a $1,000-a-month annuity will now be far more expensive. The good news is, your long-term bonds will soar in price as interest rates fall, so you will still have enough money to make the purchase.
Yet, deterred by the wild price swings, investors often avoid long-term bonds. "It's based on a complete misconception of what risk is," argues Robert Arnott, chairman of money manager Research Affiliates in Pasadena, Calif.
Battling inflation. Of course, you probably don't have employees -- and the only retirement you're worried about is your own. Nonetheless, mimicking a pension plan and buying longer-term bonds could be a smart move. But you need to tweak the strategy.
For starters, don't go overboard on long bonds, because they aren't likely to generate high long-run returns. Instead, as you struggle to amass enough for retirement, stocks should probably be your largest investment.
You also shouldn't invest too heavily in long bonds because, unlike a pension plan, your goal isn't 100% annuitization. Instead, upon retirement, you might invest 25% to 50% of your savings in an income annuity, and even less if you will collect a traditional pension.
"People need to think about what their liabilities are," says John Ameriks, a senior investment analyst at Vanguard Group, the Malvern, Pa., mutual-fund company. "Our needs are much less predictable than a steady stream of income."
Let's say you need extra money for medical expenses. If all you have is annuity income, you could be in a financial bind. But if you still own some stocks and bonds, you can sell those to pay the bills.
There's another crucial difference between you and a pension plan. While most pension plans pay the same sum every month to their retirees, what you really want is income that rises with inflation. With that in mind, skip conventional long-term bonds -- and instead buy long-term inflation-indexed Treasurys.
With inflation-indexed bonds, both the principal value and the interest paid climb along with inflation. Upon retirement, you could use your inflation bonds to purchase an inflation-indexed annuity, such as those offered by Vanguard and New York insurer MetLife. (The MetLife annuity is currently sold only through employers.)
Taking a position. How much should you invest in inflation bonds? If you're risk-averse and don't need high returns, you might keep as much in inflation bonds as you plan to invest in the annuity.
For most folks, however, a 10% portfolio allocation will likely suffice. Inflation bonds have had a rough year, but that means today's yields are fairly enticing, with 10-year inflation-indexed Treasurys paying some 2.3 percentage points a year above inflation.
You could purchase inflation bonds through a fund, such as those in the accompanying chart. Alternatively, buy individual bonds, which will allow you to tap into longer maturities -- and thereby better protect against rising annuity costs. Inflation-indexed Treasurys are available with maturities of up to 25 years.
Planning to purchase an annuity at age 65? As a hedge, you might buy inflation bonds that, once you're 65, will have 15 or 20 years to maturity, says MetLife actuary Aaron Fried.
Even if you have no intention of buying an annuity, it's still worth purchasing inflation bonds. But consider creating a "ladder" of short and long-term issues.
"A portfolio of bonds that you're consuming as you age, where you're spending both principal and interest, is almost identical to owning an annuity," says William Bernstein, an investment adviser in North Bend, Ore. "You just don't have the insurance against outliving your money."
购买长期债券 保你退休无忧
长期债券的投资回报不尽人意，而且还容易出现大幅价格波动。不过，如今长期债券受到了投资者的关注。
事实上，在一些投资者眼里，可能没有比长期债券更保险的投资工具了，养老基金就是如此。原因是：如果你接近退休年龄，创造退休收入的成本有可能会上升，而持有长期债券是规避这一风险的好方法。
兑现承诺：为了更好地了解这一点，假设你现在拥有一个小公司，手下有一些员工，你答应他们退休后每个月享有1,000美元的养老金。
你的计划是：当员工退休时，你给他们每个人购买一份即期固定年金。这意味着你要把一大笔钱交给保险公司，由保险公司每个月支付给员工每人1,000美元，直至他们身故为止。
想要确保你有足够的钱购买这些即期固定年金？不错，投资收益最高的也许是股票，而短期债券能给予你不错的、相对稳定的投资回报。但是，你购买年金的成本并不会随着股票价值或短期债券价格而波动。
保险公司收取的费用是随着长期债券的收益而变动的，即那些到期日超过十年的债券。“如果你的投资组合中有长期债券，那么它们会给予你一些保障，”纽约人寿保险公司(New York Life)的高级副总裁保罗?帕斯特里斯(Paul Pasteris)说。
假设就在你的员工退休之前，利率突然大幅下跌。坏消息是，债券收益率的暴跌意味着每月1,000美元的退休金的成本要贵很多了。而好消息是，你持有的长期债券的价格将随着利率的下跌而飙升，因此你仍拥有足够的钱来购买年金。
然而，投资者通常因为价格的剧烈波动而避开长期债券。“这种想法完全是基于对风险的错误理解，”加利福尼亚州基金管理公司Research Affiliates的董事长罗伯特?阿诺特(Robert Anrott)指出。
与通货膨胀做斗争：当然，你手下也许没有员工──你唯一担心的就是你退休后的日子怎么过。即便如此，借鉴养老金计划，并购入长期债券仍不失为明智之举。不过你需要稍微调整一下策略。
对于刚起步的投资者而言，不要过多购买长期债券，因为它们不会产生高额的长期投资回报。相反，当你为退休积累财富的时候，股票也许应该是你的投资重点。
你不能对长期债券大举投资的另一个原因是：与养老金计划不同，你的目标并非仅仅是为了获得固定的年金保障。到退休的时候，你也许仅仅把积蓄的25%至50%用于购买年金产品。如果你还能得到传统的养老金，你对年金产品的投资比率可能会更低。
“投资者必须考虑到自己的开销情况，”宾夕法尼亚州的基金管理公司Vanguard Group的高级投资分析师约翰?阿默克斯(John Ameriks)说，“相对于稳定的收入而言，我们的需要更加难以预料。”
假定你还需要一笔钱来支付医疗费用。如果你只有年金收入，那你的手头必然十分拮 。如果你还拥有一些股票和债券，那么你可以抛售它们来支付医疗费用。
还有一个重大差别是：大多数养老金计划是向退休员工支付固定的月生活费，而你希望得到的是可以随着通货膨胀水涨船高的收入。因此，你可以避开那些传统的长期债券，转而购买与通货膨胀挂钩的长期国债。
与通货膨胀挂钩的债券的特点是，它们的本金和利息均随着通货膨胀的上涨而上升。因此到你退休时，你可以用这些债券来购买与通货膨胀挂钩的年金产品，如Vanguard和大都会保险(MetLife)提供的此类产品。（大都会保险的此类产品目前只通过企业销售。）
购买策略：那么，你应该向与通货膨胀挂钩的债券投入多少呢？如果你不喜欢冒险，而且不追求高投资回报的话，你想买多少年金，就购买多少与通货膨胀挂钩的债券。
不过对于大多数人来说，10%的投资比例似乎足够了。与通货膨胀挂钩的债券在过去一年表现不佳，但这意味着当前它们的收益很吸引人，十年期与通货膨胀挂钩的国债的收益率较通货膨胀率高出约2.3个百分点。
你可以通过基金购买与通货膨胀挂钩的债券。此外，你也可以购买单个债券，这样你就可以购买那些期限更长的债券，从而更好地抵御年金成本上升的风险。目前，与通货膨胀挂钩的国债的期限最长为25年。
打算在65岁时购买年金产品？作为规避风险的手段，你可以购买那些在你65岁时，还有15至20年到期的与通货膨胀挂钩的债券，大都会保险的精算师亚伦?弗里德(Aaron Fried)说。
即使你没有购买任何年金产品的计划，也有必要购买一些与通货膨胀挂钩的债券。不过要考虑搭配购买短期债券和长期债券。
“拥有债券组合与拥有年金差不多，”俄勒冈州的投资顾问威廉?伯恩斯坦(William Bernstein)表示，“不过，如果你的寿命超出了你预设的债券资产保障年限的话，你就无法得到来自债券的资金支持了。”
Jonathan Clements
