Making a Move with Bond ETFs 5.00 / 5 (100.00%) 1 vote

Making a Move with Bond ETFs

Most bond ETF (Exchange Traded Fund) managers, invest in particular types of bonds. This refers to long or short term bonds, National Government treasury notes, private or listed company bonds, as well as various bonds issued by state or local authorities for infrastructure development. There are also bonds offering a high yield which are generally more risky, however many fund managers would include a few of these in a portfolio. Most bond ETF managers practice what is known as passive management meaning they factor in their investment criteria and allow automatic investment in the preselected bond types. Bond ETFs generally allow easy diversification and have low expense ratios.

Balancing your Portfolio

There are various factors affecting the performance of different types of bonds which in turn relate directly to the price of bond ETFs traded on the market.  You should try to purchase investments in bond ETFs with different investment criteria when establishing your bond ETF portfolio. The importance of this is that certain categories of bonds are low yield, but very secure, while at the other end is high yield but far less secure bonds.

There are also treasury and other national or state bonds that offer reasonable returns, but there value is very much dependent on the various government economic data numbers. They are also subject to yield and price fluctuation as interest rates fluctuate. You should balance your portfolio with a cross section of the different bond ETFs that are available on the market, selecting with care and looking for a blend of security and return. Remember that bond ETFs give the smaller investor an opportunity to invest in a market that was previously limited only to very large investors.

Making a Move with Bond ETFs

From time to time, the need will arise for you to divest from one or several bond ETFs and move your funds to different bond ETFs for whatever reason. Having made this decision, you should always try to do a due diligence check on any fund that you are considering buying an investment in, so as to ensure as much security for your investment as possible.

You should also consider moving your funds to fixed income ETFs once you have decided to make a move, but have not yet decided which bond ETFs you are going to purchase investments in. This keeps your funds safe and also ensures that you receive a return during the interim period. It is important that you check all cost aspects of a fund you are looking to invest in, this includes management fees as well as brokerage when buying and selling. Another very important aspect is to check out the tax efficiency of the fund as the policies regarding distribution of capital gains vary and you can end up paying taxes on paper profits.

Conclusion

Once you have established a bond ETF portfolio, you should continually keep abreast of all factors that can affect your investment. Always be aware of the release of governmental economic data as well as financial reports of companies that have issued bonds held by the fund in which you have invested. In this way, you will always know the state of your investment and will also be able to decide when is the right time to move investments from one bond ETF to another.