| Since 1993, exchange-traded funds (ETFs) have | | | | makes them so attractive? |
| provided another investment tool for | | | | |
| Americans. ETFs may offer easy trading | | | | Bond ETFs carry with them a great deal of |
| options and their convenience, along with | | | | transparency that hasn't been experienced by |
| their added bonus: diversification. | | | | many bond fund investors before. The added |
| | | | knowledge of a bond's true value, with the |
| In fact, according to the Investment Company | | | | ability of public trading, is new to many |
| Institute, since their inception, money | | | | bond fund investors. |
| invested in ETFs has grown to over $250 | | | | |
| billion dollars. | | | | The diversification found with bond ETFs |
| | | | contrasts with the concept of a bond ladder, |
| ETFs mirror an index or focus on a specific | | | | which buys and sells individual bonds, one at |
| industry or country. What sets them apart | | | | a time. Bond ETFs typically offer lower fees |
| from mutual funds is that ETFs are traded | | | | than that of its counterpart, the bond index |
| like stocks. Rather than having an | | | | fund. But there are fees nonetheless, |
| opportunity once a day to buy, ETFs are | | | | including an ongoing maintenance fee. Like a |
| traded all day long. Their price is | | | | stock, commissions are charged whenever your |
| determined by the supply and demand of the | | | | ETF is bought or sold. If you plan on a |
| fund itself, not necessarily the contents of | | | | long-term strategy, this may not be a factor. |
| the fund. | | | | |
| | | | As with all investments, each product and |
| In sharp contrast to the increasing | | | | investment strategy is meant for a particular |
| popularity of ETFs, bonds have always had a | | | | investor. But bond ETFs offer a new, and |
| somewhat lackluster existence, at least in | | | | surprisingly refreshing look at an old |
| the eyes of most investors. Bonds aren't fun | | | | mainstay. As with all investments, they have |
| or fancy or glamorous, but for some, they are | | | | their pros and cons, but if you're looking |
| considered one of the more reliable | | | | for a transparent tool with added |
| investment vehicles around. | | | | convenience, combined with the bond |
| | | | characteristics, then a bond ETF may be the |
| So what if you could combine the | | | | right call. |
| diversification and convenience of an ETF | | | | |
| with the characteristics of a bond? Such a | | | | Diversification seeks to reduce risk by |
| product does exist, and it's called a bond | | | | spreading your investment dollars into |
| ETF. From December 2004 to July 2005, assets | | | | various asset classes to add balance to your |
| in bond ETFs grew from $8.5 billion to over | | | | portfolio. However, using this methodology |
| $13 billion in only 8 months.1 | | | | does not guarantee against the risk of loss |
| | | | in a declining market. |
| Clearly, bond ETFs are catching on, but what | | | | |