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The Short Answer

Should You Diversify Your Bond Exposure?

Karen Wallace

Q: I'm thinking of retiring in about two or three years. Most of my bond exposure is currently in short-term bonds. Is it a bad idea to diversify my fixed income so I get a bit more of a return? Right now my return in short-term bonds is probably not even keeping up with inflation. But diversifying into a rising interest rate worries me.

A: The "right" bond exposure is really the right bond exposure for your portfolio. That means not only the size of the overall allocation to bonds in your portfolio, but also the diversification within that bond allocation. The first step involves determining how much risk you're taking in your portfolio.