| Getting into bond markets is easier than ever | | | | The second major advantage of ETF bond funds |
| with the emergence of ETF bond funds. In the | | | | are low costs. Mutual funds tend to cost more. |
| past, the only way to invest in bonds was to | | | | With an ETF, some large financial entity acquires |
| purchase them either directly from the issuer or | | | | some asset (say invests in a large number of |
| on secondary markets. At a minimum, this | | | | securities). Then they carve that asset up into |
| generally meant putting up at least the face value | | | | shares and sell them. Since there is no active |
| of the bond which could mean you'd need at least | | | | management, costs are low. |
| $1,000 just to enter the door. And you'd be | | | | Third, and this is really the key, an ETF trades as |
| investing in a single bond from a single corporation | | | | shares of stock. Its an equity you can buy and |
| or government, so diversity was not an option. | | | | sell on exchanges like the NYSE. You can get |
| Later mutual funds made bond investing easier. | | | | started with the price of a single share or a |
| Now investors could put up a few thousand | | | | hundred shares. There are no investment |
| dollars and get exposure to hundreds of bonds. If | | | | minimums. You can sell on the market any time |
| you had $5-$10,000 to get started with, you'd be | | | | you like when markets are open. Getting in and |
| able to build a diversified bond portfolio. | | | | out is extremely easy. |
| In recent years things have gotten a lot easier. | | | | The diversity of ETF bond funds covers all |
| The emergence of ETF bond funds, which are | | | | aspects of the bond markets-so you can not only |
| exchange traded funds that invest in bonds, | | | | build a diversified investment in say municipal |
| means that investors can get in and out of bonds | | | | bonds, but you can have a completely diversified |
| easier, faster, and at lower cost than ever | | | | bond portfolio with investment in funds with US |
| before. | | | | Treasuries, municipal bonds, investment grade |
| To see why you need to understand what an | | | | corporate bonds, junk bonds, and even |
| exchange traded fund (ETF) is. Without getting | | | | international bonds. |
| into the technical details of how the fund is put | | | | To see what's out there, visit the websites of the |
| together, its good enough to think of it as a | | | | companies that offer exchange traded funds. One |
| mutual fund that trades like a stock. Like a mutual | | | | famous company is State street global advisors. |
| fund, an ETF has a given benchmark. In the world | | | | They offer a wide variety of choices that go |
| of bonds, example benchmarks could be US | | | | under the name "SPDRS". These funds provide |
| Treasury Notes, California municipal bonds, or the | | | | opportunities to invest internationally, as well as in |
| Barclays high yield bond index. The shares of the | | | | US bonds. Jump on over to their website and look |
| ETF constitute investments in whatever securities | | | | for their "Fixed income" investments, where you'll |
| make up the benchmark. | | | | find many funds indexed to Barclays Bond |
| Three things make exchange traded funds very | | | | indexes. |
| appealing, especially for small investors. Like | | | | There are other options as well. Others financial |
| mutual funds, exchange traded funds give | | | | houses offer a wide variety of funds including |
| investors diversity. ETF bond funds can represent | | | | iShares and powershares. |
| underlying investments in 50-200 different bonds. | | | | Since you can select among different types, be |
| Say you were investing in high yield or junk | | | | sure to diversify your exposure. Exchange traded |
| bonds. If you were buying bonds individually, | | | | funds make this easy, you can include low risk |
| $1,000 would give you exposure to a single bond. | | | | investments in your portfolio like US Treasuries |
| The chances of the issuer defaulting are high, and | | | | and munis, or go with investment grade |
| you would be at serious risk of losing your $1,000. | | | | corporate. To get some high yields, you'll want to |
| ETF bond funds mitigate this risk. If you took | | | | look at junk as well. The advantage of course, |
| your $1,000 and put it in a fund that invested in | | | | being that with an ETF you're not putting all your |
| 150 junk bonds, you'd be more insulated against | | | | principal at risk on the chance a single corporation |
| default. A few of them might go into default or | | | | might default. |
| perform badly, but its very unlikely they all will. | | | | |