With extraordinary low interest rates and modest inflation, investing in long-term bonds to capture as much yield as possible may seem like a smart move. But the years leading up to retirement tend to be your highest-earning years and an allocation to equities can boost your retirement portfolio.
Also, as interest rates rise, bond yields fall. "With interest rates poised to rise over the next few years, a large allocation to bonds, especially now, may result in significant capital loss," said Hardeep Walia, CEO of Motif Investing.
He suggests adding exposure to equities that do well in a rising rate environment.
There is also no guarantee that inflation will stay benign.
"The extra reward you get in the form of higher yields from stretching on maturity will come back to haunt you should inflation trend upwards faster than expected," said financial advisor Manisha Thakor, director of wealth strategies for women at The BAM Alliance. "For many people, the only way to keep assets growing enough to not only beat inflation but hopefully grow in real terms is to take on some equity risk."