Chapter 2 of 5 – By Manuel Tovar, October 04 – Hispanic Solutions Group
Top Bond ETFs
A bond ETF provides exposure to a portfolio of bonds, which are often divided into subsectors based on their issuer, maturity, and other factors, allowing investors to buy exactly the type of bonds they want. The bonds pay interest on a schedule and the ETF transfers this income to the holders.
Bond ETFs can be an attractive entry for those who need the security of a regular income, such as retirees. Some of the most popular bond ETF sectors include:
- Long-term bond ETF
This type of bond ETF offers exposure to bonds with a long maturity, perhaps up to 30 years. Long-term bond ETFs are more exposed to changes in interest rates, so if rates go up or down, this ETF will move inversely in the direction of rates. While these ETFs can pay a higher return than short-term bond ETFs, many don’t see the reward as a risk.
- Short-term bond ETF
This type of bond ETF offers exposure to bonds with a short maturity, usually no more than a few years. These bond ETFs will not move much in response to changes in interest rates, which means they are relatively low risk. These ETFs can be a more attractive option than owning the bonds directly because the fund is highly liquid and more diversified than any individual bond.
- Total Bond Market ETFs
This type of bond ETF offers investors exposure to a wide selection of bonds, diversified by issuer, maturity, and region. A total bond market ETF provides a way to get broad exposure to bonds without going too heavy in one direction, making it a way to diversify a portfolio with many stocks.
- Municipal bond ETF
As we can see in this and subsequent chapters, we indicate that this type of bond ETF offers exposure to bonds issued by states and cities, and the interest on these bonds is usually tax-free, although it is lower than the one they pay. other issuers. Munis bonds have traditionally been one of the safest areas of the bond market, although if you hold munis out of state in a fund, you will lose tax benefits in your home state, although not at the federal level.
- More balanced ETFs
A balanced ETF owns both stocks and bonds, and targets some exposure to stocks, which is often reflected in its name. These funds allow investors to have long-term returns on stocks while reducing some of the risk with bonds, which tend to be more stable. A balanced ETF may be more suitable for long-term investors or those who may be a bit more conservative but need portfolio growth.
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