A plain-language guide for Irish investors approaching or in retirement — May 2026

If you're approaching retirement in Ireland, or already drawing income from an Approved Retirement Fund (ARF), you may be wondering whether bonds still deserve a place in your retirement portfolio.

The noise around bonds has been relentless. In 2022, bonds and equities fell at the same time, the worst outcome for a diversified retirement portfolio since 1937. Headlines declared the 60/40 portfolio dead. And now, in 2026, with the 30-year US Treasury yield at its highest since before the Global Financial Crisis, the question is getting louder again: should I hold bonds in my ARF at all?

The short answer is that the case against bonds has been significantly overstated. Bonds are doing exactly what they have always done. The problem is not the bonds, it is the expectations investors brought to them after fifteen years of unusually subdued inflation. This post works through the maths, looks at the most relevant historical precedent, and explains what all of this means for you if you have bonds in your pension or ARF.

The Role of Bonds in a Retirement Portfolio

High quality bonds: government bonds, gilts, Treasuries, are one of the best diversifiers you can hold against equity risk. Not a perfect one. But one of the best available.

The reason is structural. Equities are most vulnerable during recessions and periods of weak economic growth. When the economy slows, corporate profits fall, and equity prices follow. In those environments, central banks typically reduce interest rates and inflation tends to ease. Falling interest rates push bond prices up. So bonds and equities tend to move in opposite directions when the dominant risk is a growth slowdown.

The relationship changes during inflationary shocks. When inflation surges, as it did from 2021 — central banks raise rates aggressively to bring prices under control. That pushes bond prices down. If equities are also falling because of uncertainty, you get what we saw in 2022: both asset classes declining simultaneously. For investors who believed bonds were an all-weather hedge, that was alarming.

But this behaviour has always been a feature of how high quality bonds work. Very little has actually changed. What changed was that after nearly fifteen years of disinflationary pressure and near-zero interest rates, investors stopped building portfolios that were resilient to inflation. 2022 was the consequence of that complacency — not evidence that bonds are structurally broken.

As Joe Wiggins of Behavioural Investment wrote in May 2026: bonds are behaving just like bonds. When the next recession arrives, and it will, investors will be glad to hold them.

How Bond Returns Actually Work: The Formula Most People Miss

Here is the most important thing to understand about bonds, and the reason they are more predictable than almost any other asset class.

Bond returns are largely explainable by two things: your starting yield, and a duration adjustment. The starting yield, the interest rate the bond pays when you buy it, is the single best predictor of what you will earn over a medium-to-long holding period. If you buy a bond today with a 5% yield and hold it to maturity, you will earn approximately 5% per year. That is not a forecast. That is the maths of how bonds work.

What happens when interest rates rise? Bond prices fall in the short term. That is real, and it accounts for most of the pain investors experienced in 2022. But rising rates also improve your future returns. When existing bonds mature, you reinvest at the new, higher rate. And the range of possible outcomes actually narrows. A higher starting yield gives you a larger buffer against further price movements.

This is the counterintuitive insight that most commentary misses: rising interest rates make bonds more predictable for the long-term investor, not less. Bonds at 5% are considerably safer over a five-to-ten-year horizon than bonds at 0.5% — because the income component provides a meaningful cushion, and because there is far more room for yield movements without destroying long-term returns.

The 1970s: The Most Important Precedent for 2026

The strongest evidence for this is also the most dramatic. The 1970s represent the last time interest rate volatility was comparable to what we are experiencing today.

The 10-year US Treasury yield started the 1970s at 7.88%. It fell to 5.38% by 1971, then climbed steadily. By 1979, it had reached 11.02%. It ended the decade at 10.33%. That is a range of nearly 600 basis points over ten years, some of the most extreme rate volatility in modern financial history.

Here is what actually happened. 10-year US Treasuries returned approximately 69% cumulatively over the 1970s — a compound annual growth rate of around 5.4% per year. The worst single year was 1978, when bonds lost 0.78%. Less than one percent.

Source: Aswath Damodaran, NYU Stern — historical return data series.

Bonds did not break in the 1970s. They performed in almost exactly the way you would expect an instrument yielding around 7% to perform, even through a decade of extraordinary rate volatility. The starting yield predicted the outcome.

Today the equivalent starting yield, on a diversified high-quality bond fund, is in the region of 4.5% to 5%. That is meaningfully better than the 0.5% to 1% yields that prevailed from 2015 to 2021. The starting position matters. And right now, it is considerably more favourable than at any point since before the financial crisis.

Is the 60/40 Retirement Portfolio Still Relevant for Irish Investors? A Reality Check

In March 2026, BlackRock declared the 60/40 portfolio dead. It was not the first time this claim had been made. But the evidence does not support it.

Morningstar stress-tested the 60/40 portfolio against 150 years of stock and bond market crashes. The conclusion: the portfolio held up across all major downturns. The 2022 outcome was the fourth-worst in 200 years of data. But it was specifically explained by an inflationary shock of a kind that had not been seen in decades. As that shock normalised, the stock-bond correlation reverted. The 60/40 rebounded strongly in 2023, 2024, and 2025.

The real lesson from 2022 is not that bonds have lost their role — it is that portfolios built exclusively for low-inflation environments were exposed when inflation returned. Writing off an entire asset class because it performed predictably during an inflationary shock is not a sound conclusion.

What Bond Yields Mean for Your ARF Investment Strategy in 2026

If you have bonds in your ARF, whether through a managed fund, a multi-asset strategy, or a specific bond allocation, there are a few practical implications worth understanding.

First: the income component alone is now meaningful. At current yields of around 4.5% to 5%, a bond allocation generates real income without requiring you to draw on capital. For many ARF holders, the imputed distribution — the minimum annual drawdown required by Revenue — can be met from yield alone, without selling growth assets.

Second: if you are in the five years before or after retirement, the period often called the retirement red zone, a meaningful bond allocation does exactly what it is supposed to. It reduces the probability that a large equity drawdown forces you to sell growth assets at the worst possible time. Bonds yielding 5% provide considerably more protection in this period than bonds yielding 0.5%.

Third: Should You De-Risk Your Pension Before Retirement? Many people with occupational pensions have been automatically shifted into bonds by their pension provider as they approach retirement. Being moved into bonds by default is a very different thing from consciously choosing an allocation based on your specific needs, time horizon, and risk tolerance. If your portfolio has been automatically de-risked without your input, it is worth reviewing.

There is no universal answer on how much to hold. What can be said is that the case against bonds has been overstated — and that at today’s starting yields, they offer a meaningfully better foundation than at any point in the previous fifteen years.

Should Retirees Hold Bonds in Their ARF?

Bond returns are largely explainable. Starting yield plus duration accounts for most of what you will earn. Rising interest rates improve your future returns — they do not destroy them.

The 1970s are the proof. Yields rose from under 8% to over 11% in less than a decade. Bonds still returned 5.4% per year. The worst single year was a loss of less than 1%. Bonds did not break then. They are not broken now.

At current yields of around 5%, the starting position is the best it has been since before the financial crisis. For anyone in or approaching retirement, this is a meaningfully different conversation than it was in 2020 or 2021.

If you have been wondering whether the bond allocation in your own ARF or pension is right for you — whether you have too much, too little, or the wrong type — that is the kind of conversation we have in a Retirement Clarity Call. It is free, there is no pressure, and it lasts about 30 minutes. You can book one at informeddecisions.ie.

I hope this helps.

Paddy Delaney QFA RPA APA