12 Jun At 35, do I need bonds?

 Q. I’m 35 and I have a 401(k) worth about $220,000. I invest regularly through my paycheck. I don’t really like the bond choices in my plan, so the account is 100 percent in stocks. Should I put some in the bond fund anyway?

A. Maybe and maybe not.

It’s all about how much risk you’re willing to take if things go bad for the stock market.

At age 35, it is not necessary to allocate any portion of your 401(k) to bond funds, said Kim Viscuso, a certified financial planner with Stonegate Wealth Management in Oakland.

“As you age, you may want to start moving some of your retirement savings into fixed income,” Viscuso said. “The exact amount should be decided based on your tolerance to risk and how long you plan to keep your money invested.”

With that said, it is important for you to visualize how much your portfolio may decline in a bear market, she said.

Viscuso said in the last bear market, from 2007 to 2009, the decline for the S&P 500 was 47 percent. If you think you can stomach that type of possible decline, ultimately you are better off at your age to have much of your 401(k) invested in equities, she said.

“The thinking is that you should not really have to touch the funds until retirement which may be 30 years in the future,” she said. “The worst possible mistake we have seen people make is to panic during a decline and sell out and then miss the recovery.”

So, she said, picture your $220,000 401(k) dropping to $120,000, albeit probably temporarily. If your psyche can withstand that, then stay all in equities, with the caveat mentioned earlier that you may want to become more conservative as you approach retirement.

Even with the historical likelihood that a portfolio of all equities will come back over time, having an allocation that includes bonds can be helpful, especially if you may get nervous about the downturns.

“Allocating 20 to 25 percent to bonds can reduce the volatility in the portfolio, which can help you deal with the emotional urge to sell stock investments in a declining market,” said Howard Hook, a certified financial planner and certified public accountant with EKS Assoc. in Princeton.

He said you shouldn’t get too hung up on the specific bond fund choices in the plan.

“Studies have shown that the major determinant of long-term returns is asset allocation and staying invested during periods of market declines,” he said. “Hopefully there is a bond fund choice that represents a wide variety of bonds that you can choose from.”

If you don’t like the choices, you can lobby your employer to include a specific bond fund you do like, Hook said.

“Many 401(k) k plans today allow plan trustees the ability to pick from hundreds of fund choices when selecting the investments in the plan,” he said.

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This story was first posted in June 2015.