Want the fixed maturity of bonds with the diversity of an ETF? There’s an investment for that.
There are those who are concerned about recent stock market volatility. The crash of 2008, and earlier busts, have some a little jittery about the idea of investing in stocks. So the focus has shifted to bonds to some degree. They are considered somewhat safer, with a fixed maturity and interest rate.
However, diversifying effectively in bonds is somewhat difficult for those who don’t have vast wealth resources. That’s why many “regular” investors like the idea of bond funds. It’s possible to get a measure of diversity, even with a more modest investment amount. Low cost ETFs that focus on bonds have become quite popular as a result. Bond ETFs trade on the exchange like a stock, but you get exposure to bonds. However, unlike regular bonds, bond ETFs have not had fixed maturities.
Instead, you end up with shifting results as bonds mature and are renewed, or swapped out of the ETF. Instead of having a fixed maturity that guarantees the return of your principal at a specific time, you liquidate when you are ready, and take your chances with market conditions.
Until now. Enter the fixed maturity bond ETF.
Bond ETFs that Offer a Fixed Maturity
Now, if you are looking for a fixed maturity for your bond ETF, you have options. You can take advantage of a few different ETFs that promise that you will get your principal back at a certain time. Maturities can be chosen, depending on calendar year, or on some other criteria. The advantage of these bonds is that the holder doesn’t have to worry about fluctuations in the bond market — as long as he or she keeps the ETF until it matures.
The best use of fixed maturity bond ETFs is for expected expenses in the future. You might use one to help you set aside money for a down payment on a house, a child’s wedding, or college tuition expenses. Remember, though, that you aren’t going to see huge yields with bonds. They are considered “safer,” so the returns aren’t going to be terribly dramatic. The point of fixed maturity bond ETFs is to help you take some of the guesswork out of what you will receive, and to protect your money.
Expenses on fixed maturity bond ETFs average between 0.24% and 0.42%, depending on the type of ETF you get (high-yield bond ETFs are an option), and its maturity date.