I have a 60% stock, 40% fixed income asset allocation in my employee 401k. Should I?
put all 40% of the fixed income into bonds (Barclay's Capital U.S. Aggregate Bond Index), or should I allocate a portion of my fixed income to a Stable fund?
The reason I ask this is because interest rates are at an all-time low, and I fear losing money if I allocate all 40% of my portfolio to a bond fund, and interest rates rise.
But, on the other hand, if I put, maybe 10%-15% of my portfolio in a Stable fund, I would STILL be losing money because it only yields about 3% a year vs. 6%+ for bonds.
So, I think I have 3 options. Please tell me which would be more prudent in this low interest rate environment we're in:
Option 1
15% Stable fund
25% bond index fund
60% stock index funds
Option 2
10% Stable fund
30% Bond index fund
60% Stock index funds
Option 3
40% Bond index fund
60% Stock index funds
FYI: I am looking to retire early, in about 8-10 years (I'll be 50-52).
My employer does not offer TIPS, IBonds, or any other fixed income option except for a Stable fund and a bond fund that tracks the Barclay's Capital US Aggregate Bond Index.
One final word, as I see this coming: Please do not make an issue of my stock/fixed income asset allocation ratio. I have thought long and hard about this, and read many books and articles on the subject. I have done my homework. I have made up my mind, and I am comfortable with the allocation I chose. If you are going to reply to my post just to question my asset allocation, please do not reply.