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3 Bond ETFs for Retirees

Susan Dziubinski: Hi, I'm Susan Dziubinski for 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, I'm Susan Dziubinski. Thanks for watching.

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