The rule of thumb has always been that as individuals get older they should allocate more to bonds, but that may not be the best route to retirement — and not just because of rising interest rates.
They may be overlooking the other big source of fixed income, which is Social Security, John Bogle, founder of The Vanguard Group Inc., said last Thursday at the Morningstar Investment Conference in Chicago.
“Social Security's the greatest fixed income you'll ever get,” he said.
With that in mind, it would behoove retirees to pay more attention to dividend-paying stocks in a retirement account.
“Dividends go up virtually every year, with two exceptions: the Great Depression and 2008. I don't think that's likely to happen again,” Mr. Bogle said.
Stocks, even dividend-paying ones, are going to be more volatile than bonds, but as long as there isn't another serious crash, the swings shouldn't bother investors, he said.
“We're all so transfixed with the movements of the stock market, but that has nothing to do with your retirement,” Mr. Bogle said.
“It doesn't matter what the stock market is worth as long as the income keeps coming from dividends,” he said. “In the long run, focus on the dividend stream, and focus on the fact that Social Security will keep coming.”