{"id":6799,"date":"2013-08-14T10:50:04","date_gmt":"2013-08-14T17:50:04","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=6799"},"modified":"2016-12-21T07:28:28","modified_gmt":"2016-12-21T15:28:28","slug":"how-to-buy-a-bond-etf-in-this-market","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/how-to-buy-a-bond-etf-in-this-market\/","title":{"rendered":"How To Buy A Bond ETF In This Market"},"content":{"rendered":"

It’s not hard to find scary headlines about the\u00a0bond market<\/a>\u00a0these days. Interest rates are scraping along historic lows and bond prices are very high as a result. Bond ETF buyers are not exempt.<\/p>\n

To novice investors, this can be a tricky concept, but it make sense: A bond issuer likely to pay the money back gets to pay a lower \u00a0interest rate. Demand for debt of that quality means prices are higher.<\/p>\n

\"bond<\/a><\/p>\n

The trouble for bond investors now is that very low rates imply a high risk of bond prices falling in the future. If they need to sell a bond, there’s a chance they will get less for it.<\/p>\n

You might say, “Well, just hold the bond.” Except that, at current rates, many bonds pay less than the\u00a0inflation rate<\/a>. It’s an automatic loss. Your money is safe, but only just.<\/p>\n

If inflation accelerates, things get worse. You lose even more money as your capital is returned in the future with less purchasing power.<\/p>\n

So, in a nutshell, that’s why so much hullabaloo over bonds. Buying a bond ETF can bring you\u00a0diversification<\/a>, but it’s not the whole answer. Instead, consider these tactics for spreading out bond risk:<\/p>\n

1. Buy a mix of bond durations<\/strong><\/p>\n

Nobody said you had to buy only U.S. Treasuries out to 30 years. There’s a feeling of security in long U.S. debt, but the longer the duration the more you should be getting in return. Current long U.S. debt pays a low rate, so buying a lot of it locks you into the inflation conundrum. Instead, consider tranches of shorter debt that you can more easily sell as\u00a0interest rates<\/a>\u00a0rise over time.<\/p>\n

2. Buy lower quality, higher yield bonds<\/strong><\/p>\n

“Junk” bonds have a bad name. Some investors prefer to call them “high yield.” But they have a place in many portfolios. Sure, the risk of loss is higher, but the rates junk bonds pay are higher to compensate. Here, a bond ETF can really protect you from the occasional lapse by spreading out your holdings over many positions and durations.<\/p>\n

3. Own foreign bonds<\/strong><\/p>\n

Home bias is strong. We tend to focus on U.S. government debt as if foreign government bonds, or “sovereigns,” were completely unreliable. Some are, but many countries issue perfectly safe debt of various durations. A well-run foreign bond ETF can help you stake out a\u00a0higher rate of return<\/a>\u00a0while minimizing risk.<\/p>\n

4. Own “bond-like” income investments<\/strong><\/p>\n

Bonds\u00a0are a great counterweight to fluctuations in general stock market values. But so are\u00a0dividend-paying stocks<\/a>\u00a0such as telecommunications and utilities companies. Purchased at a reasonable price, these types of stocks often pay several times over the income of bonds and offer you a solid flow of investable cash at a reasonable level of risk.<\/p>\n

5. Rebalance, always<\/strong><\/p>\n

You cannot and will not outguess the bond market experts. Programmatically selling high and buying low with discipline, which is\u00a0rebalancing<\/a>, is the key to protecting your portfolio from unnecessary risk.<\/p>\n","protected":false},"excerpt":{"rendered":"

It’s not hard to find scary headlines about the\u00a0bond market\u00a0these days. Interest rates are scraping along historic lows and bond prices are very high as a result. Bond ETF buyers … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":6800,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[7],"tags":[],"yoast_head":"\nHow To Buy A Bond ETF In This Market | MarketRiders.com<\/title>\n<meta name=\"description\" content=\"It's not hard to find scary headlines about the bond market these days. 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