Should I Put My 401k Money Into Bond Funds?


As you put away money for retirement, you'll need to decide what 401k investment options are right for you. How much, if anything, you should allocate to bond funds will depend on your risk tolerance profile, a personal profile based on various factors, including age, account size and risk preferences. You can request a risk tolerance questionnaire from your financial advisor or from the company that manages your 401k. The completed risk profile will provide you with an idea of where you place on a range from conservative to aggressive.


  • Bonds are considered a conservative investment because, generally, neither the potential gains or the potential losses as as great as with stocks. The more time you have to invest toward your retirement, the more time you will have to accumulate money and make up for possible losses along the way. Consequently, experts suggest that younger investors adopt a more aggressive strategy if they are comfortable with it. This means that you will invest little or no money in bond funds in order to take advantage of higher yielding products like domestic and international stock funds, real estate funds, natural resources funds and others. As you get older, your strategy will change toward protecting your assets, and bond funds will become more prominent in your portfolio.

Account Size

  • The larger your account, the more diversified it should be. Because losses are proportionate to account size, by having the right mix of investments you will limit your losses. Ordinarily, when stocks are on the rise, bonds don't do as well, and vice versa. If you have a really small account -- less than three thousand dollars -- you may want to keep it simple by investing in a balanced fund or an asset allocation fund that has a balanced mix of different stocks and bonds.

Other Accounts

  • When creating an asset allocation, it is important to look at the whole picture. If you have other retirement accounts, such as a traditional IRA, a Roth IRA or an old 401k from your previous job, consider the allocations and the balance between stocks and bonds across all the accounts. You may need to adjust one or all accounts to arrive at the desired allocation in your whole retirement portfolio.

Risk Preference

  • Your risk preference may be the most important factor in determining whether you should invest your 401k money into bond funds. If you are a really conservative investor, if stock market scares you, and you are up at night worrying about losses, you may want to keep much of your money in bonds and other safe funds like money markets, no matter what your age. If you are willing to take the risk and are looking for strong growth, you are an aggressive investor and should limit your exposure to bond funds in order to achieve highest growth potential in your 401k.


  • Photo Credit stocks and shares image by Andrew Brown from
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