Investing in Bond ETFs
Bond Exchange Traded Funds (ETFs) are one new investment option available for investors who want steady long-term returns, portfolio diversity and lower-risk. Bond ETFs helps traders to overcome the lesser transparency and liquidity in bond market (except for some liquid bonds). More over, unlike bonds, the investors can monitor them more accurately as the historical and current prices are readily available.
Bond ETFs or fixed income ETFs passively tracks government and corporate bond indices. Usually bonds are held in ETF portfolio until maturity and then the money from payoff is reinvested in new bonds. The unavailability of an active secondary market makes it difficult to analyze the liquidity of bonds tracked; this is more common with ETFs tracking corporate bonds. Most ETFs overcome this problem by tracking a small number of liquid bonds in the portfolio rather than tracking all of them; the process is representative sampling.
Bond ETFs holders receive monthly dividends on bond interests and annual dividends on capital gains. The greatest advantage of bond ETFs is the protection from interest rate changes (remember ETFs can also be short traded). Other advantages include 1) diversification – as with a low amount one can invest indirectly into many bonds (even international bonds), 2) lower expense ratio than bond mutual funds, and 3) current and historical prices. Disadvantages include 1) trading costs and management costs which make them unsuitable for small and frequent trades, 2) not suitable for short-term profits and 3) the returns are usually lower compared to stocks and other financial instruments.
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Bond ETFs or fixed income ETFs passively tracks government and corporate bond indices. Usually bonds are held in ETF portfolio until maturity and then the money from payoff is reinvested in new bonds. The unavailability of an active secondary market makes it difficult to analyze the liquidity of bonds tracked; this is more common with ETFs tracking corporate bonds. Most ETFs overcome this problem by tracking a small number of liquid bonds in the portfolio rather than tracking all of them; the process is representative sampling.
Bond ETFs holders receive monthly dividends on bond interests and annual dividends on capital gains. The greatest advantage of bond ETFs is the protection from interest rate changes (remember ETFs can also be short traded). Other advantages include 1) diversification – as with a low amount one can invest indirectly into many bonds (even international bonds), 2) lower expense ratio than bond mutual funds, and 3) current and historical prices. Disadvantages include 1) trading costs and management costs which make them unsuitable for small and frequent trades, 2) not suitable for short-term profits and 3) the returns are usually lower compared to stocks and other financial instruments.
NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
posted by Daniel Pipitone at
5:53 AM
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