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