Bond ETFs for income

Discussion in 'ETFs' started by Muffhands, Apr 16, 2018.

  1. ET180


    As if capital preservation doesn't matter to older wealthy bond investors...sure, just tell your friend that you've asked some basic questions on an internet forum (some of which could have been answered by common sense) and his multi-million dollar investment in high yield junk bonds probably won't go to zero so he has almost nothing to worry about. Btw, even if you did not read the prospectus, why not pull up a chart and look at what happened to some of these bond ETFs back in 2008 / 2009. Along with the yield, that will give you some idea of the level of risk involved.
    #21     Apr 17, 2018
    sss12 and kj5159 like this.
  2. When interest rates rise, existing bond values fall. Some of the experts around here can provide some details. But in a rising interest rate environment, I'm not sure if a bond fund is going to be so great.
    #22     Apr 17, 2018
  3. Yeah but to me that just seems like timing the market. Isn’t that like saying certain times are bad for being in equities. I think if I’m looking for the long term (5-10 years) it doesn’t really matter what rates are doing right?
    #23     Apr 18, 2018
  4. kj5159


    If you buy a bond and hold it to maturity, assuming the issuer doesn't default, then rising rates won't matter to you. The bond will lose value when it is marked to market but if you're just going to hold it to maturity regardless you get repaid face value.
    #24     Apr 18, 2018
    Muffhands likes this.
  5. Sig


    True. But keep in mind that if you buy a 10 year bond at 2% and interest rates go to 10% in year 2, you lose out on 800 basis points worth of interest for 8 years. That's exactly reflected in the amount the bond decreases in value in year 2. So the fact that you get repaid face value at the end of 10 years is somewhat of a red herring and rising interest rates do matter.
    #25     Apr 18, 2018
    Muffhands likes this.
  6. kj5159


    Yeah well there's that. LOL.
    #26     Apr 18, 2018
    Muffhands and lawrence-lugar like this.
  7. srinir


    While it is true, coupon is reinvested at higher interest rates. So total return over that 10 year is higher. Duration of the bond is the breakeven period, provided coupon is reinvested.


    I picked random article from internet, but one can workout the details

    Inflation is higher threat for the bonds than the rising rates.
    Last edited: Apr 18, 2018
    #27     Apr 18, 2018
    kj5159 and Muffhands like this.
  8. Sig


    A good point. Alternately when your current 10 year treasury rate is 2.8%, not a whole lotta coupon to invest.
    #28     Apr 18, 2018
    srinir and Muffhands like this.
  9. Yes but a bond etf does not mature. I’m asking specifically about bond ETFs
    #29     Apr 18, 2018
  10. sss12


    see my post #15
    #30     Apr 18, 2018