Bonds in my retirement account

But first, what exactly is a bond? Great question.

A Bond is just and IOU from the issuer to the Bond holder. In other words, I "loan" my retirement dollars to a company and they pay me interest until the bond matures at which time I get my loan back. (oversimplified explanation)

Most "experts" would say a good rule of thumb is to allocate the same percentage as your age to bonds. So, I'm 42 and based on that, I should have somewhere between 40-45% of my retirement funds in a bond mutual fund. (I'm currently below that allocation percentage.)

Fidelity has a fantastic page on their website that explains exactly how bonds work. (click here). It's well worth a quick read.

Here are three recommendations on bonds.

1. They should be part of your retirement plan allocation.
2. Always buy a bond mutual fund never individual bonds (the same applies to stocks)
3. I like a good global bond fund.