Question: Your recommended bond funds include Tips and Treasuries. What do you think about allocation to foreign bonds, such as Australia or Brazil? Some even recommend bank loans, e.g., BKLN. Or am I just reaching for yield?
Answer: The reason I recommend the Tips and Treasuries is to minimize (or reduce) volatility in the portfolio – bonds for stability and equities for growth. If you add foreign bonds, it will add to volatility and I would then reduce the exposure to equities.
Once adjustments are made to reach for yield, we get into a market timing decision as to when to get out of those instruments and into something with less risk and greater fixed-income return. Half of my own retirement investments are in buy and hold (50% equities and 50% low risk bonds). The other half is managed with timing (70% equities and 30% fixed income). In this part of my portfolio I use more risky fixed-income securities, as there is a defensive strategy to address the higher volatility of the high-yield and other more risky bond funds.