The writing has been on the wall for a while about rising interest rates. This year, we saw exactly what this move does to bond funds, as rates rise, the price of bonds fall and the value of bond funds fall with it. One way around this is to own individual bonds (I’ve highlighted others like floating rate bond funds). A target maturity bond ETF might be another option.
One of the benefits of owning an individual bond is the fact it has a maturity date. It’s an end date. The bond matures and you get your money back. That doesn’t exist with a bond fund. Of course, when you own individual bonds you lose the diversification a bond fund offers. But what if you could combine the two? Well, a target maturity bond ETF brings a maturity date to a diversified bond fund.
What Is It
A target maturity bond ETF holds a basket of bonds that mature in the same year. Once the bonds in the fund mature, the fund is closed, and you are paid out. Continue Reading…
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