Ever since 1993, exchange traded funds (ETFs) have given another investment tool for Americans. ETFs could offer simple trading options and their convenience, along with their added bonus: diversification.
In fact, according to the Investment Company Institute, since their inception, money invested in ETFs has expanded to over $250 billion dollars.
ETFs imitate an index or focus on a particular industry or country. What makes them different than mutual funds is that ETFs are traded like stocks. Rather than having an opportunity once each day to buy, ETFs are traded 24/7. Their price is determined by the supply and demand of the fund itself, not necessarily the contents of the fund.
In sharp contrast to the growing popularity of ETFs, bonds have always had a somewhat lifeless existence, at least in the eyes of most investors. Bonds aren’t fun or exciting, but for some, they are thought of as one of the most dependable investment vehicles out there.
Clearly, bond ETFs are catching on, but what makes them so fascinating?
Bond ETFs carry with them a great deal of transparency that hasn’t been experienced by many bond fund investors previously. The added knowledge of a bond’s accurate amount, with the ability of public trading, is new to many bond fund investors.
As with most investments, each product and investment strategy is meant for a particular investor. But bond ETFs offer a new, and surprisingly refreshing look at an old mainstay. As with all investments, they have their pros and cons, but if you’re looking for a tool that has added convenience, along with the bond characteristics, then a bond ETF could be the right choice.
Diversification looks to reduce risk by placing your investment bucks into all different asset classes to add balance to your portfolio. However, using this methodology does not guarantee against losing in a declining market.