If you listen to Warren Buffet, the world’s most renowned and successful investor (he’s worth over $104bn), then there’s one thing you should look into for your own success.
That’s holding in your portfolio around 10% bonds. And the rest of it, he suggests, should be thrown into a good exchange traded fund (ETF) that doesn’t cost much to run, paired with high returns.
So if you’re in the market, we spoke to our pals at Stake (sign up here) about bonds, what it all means and a couple of ways you can dip your toes in. Remember, this isn’t financial advice – make your own choices.
With inflation being the latest buzz-word in economies over the last year, the possibility of increased interest rates are a possibility for the first time in years. With that, exposure to interest bearing assets like bonds has risen too.
A bond is a debt issued by governments or corporations. Attached the debt is a fixed interest payment (coupon) rewarded to investors who hold the bond until its maturity date. With the possibility of interest rate rises, the size of the coupon could potentially increase too making bond investing more feasible for the market.
What’s the best way to get access to bonds?
The beauty of the US stock market is the variety of its offerings. Sure, names like Tesla and Apple headline the market but there are so many different options for investors. There are renewable energy ETFs and volatility products for instance, all wrapped up and made available to everyday investors. Bond ETFs provide the most simplified exposure to different forms of debt. Coupons are paid out like dividends.
Which are some of the biggest bond ETFs on the market?
Issuers like PIMCO, Vanguard and iShares offer dozens of bonds tracking short term government interest rates. Here are some of the more interesting options on Stake.
PIMCO Active Bond Exchange-Traded Fund (BOND)
An actively managed fund investing in high grade corporate debt as well as up to 30% of the portfolio in riskier, but higher yielding, B grade debt.
iShares 10-20 Year Treasury Bond ETF (TLH)
The longest term bonds have the highest yield. After all, the longer you hold a debt the higher the risk. iShares ETF currently yields 2.8% per year for holders.
VanEck Vectors Green Bond ETF (GRNB)
Some corporations or governments are issued bonds solely to finance green projects. For the eco-conscious investor, VanEck’s offering only offers exposure to debt financing such initiatives.
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