Mutual Funds/Bond Funds

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Question
QUESTION: Hello:

Is a high yield fixed income mutual fund a good investment for an IRA?

I thank you for your reply.

ANSWER: Hi. From a tax perspective, placing a high yield bond fund in an IRA makes good sense as the income that is generated is sheltered from taxation as it gets paid. However, you should first decide if a high yield bond fund is a good addition to your overall investment strategy. This is difficult to comment on in a forum such as this since it is dependent on your tolerance for risk and the specific goals you have. Generally speaking, I do feel that high yield bonds are a good thing to have in an investment portfolio, as long is it is the right percentage and the right fund. I hope this helps.

---------- FOLLOW-UP ----------

QUESTION: Hello:

I want to thank you for your reply.

What type of bond funds would not be appropriate in an IRA account?  Would a U.S. treasury fund be appropriate?

I thank you for your follow-up reply.

Answer
Hi. In deciding what time of investments to put into your IRA, you should first make sure that the investments you are considering fit into your overall strategy. Assuming they do, then I prefer to put bonds and bond equivalents into IRA accounts; treasury bonds could be included as part of this. However, in doing so, the assumption is that you are putting stocks and other investments in your non IRA accounts for a proper overall balance. If IRA assets are the majority of your investments, then a keener eye needs to be placed on making sure you have the right investment mix in general; which would more than likely include investments besides bonds only. I hope this helps.

Mutual Funds

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John D Smith, CFP

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