Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
What are bonds?
Bonds are a way for governments or companies to borrow money from investors, in exchange for income, which is paid out on a regular basis.
What role do bonds play in a portfolio?
Bonds provide investors with 3 potential benefits when they hold them as part of their portfolios: 1-
They provide a stream of income generally higher compared to easy access bank deposit accounts. (1) 2-
They offset some of the volatility investors might see from owning stocks. In fact, bonds are considered as less risky investments compared to stocks and historically showed more price stability during market turbulence. (2) As a result, investors are using them as a diversification technique to lessen the effect of market volatility on their portfolio by distributing their investments over various assets. Risk: Diversification and asset allocation may not fully protect you from market risk. 3-
Because they repay a principal at maturity, they appeal to investors who wish to preserve capital Sources 1 - Source: Blackrock as of June 2023. Bonds are unlike bank deposit accounts as they invest in financial markets. Therefore, there is a greater level of risk to your money, because they can go up and down in value, but this can mean greater returns. Additionally, in high inflation environment, the cash held in bank deposit accounts savings are at risk of losing value. As, inflation will reduce the buying power of your money over time.
2 - Source: Russell Investments as of November 2022. Statement based on data comparison of correlation of the daily returns on the Russell 3000™ U.S. equity index and the Bloomberg U.S. Aggregate bond index from 31 December 1986 to 31 December 2022.
Why invest in bonds now?
Following central banks decisions to increase interest rates globally in 2022 and 2023 (2), the outlook for fixed income has become much more positive. Bonds now offer more attractive yields than they have in 15 years (3), which may create more income generation opportunities for investors. Sources 2 & 3 - Source: Bloomberg and BlackRock as of 31 May 2023
So you want to add bonds to your portfolio? Make it easy with ETFs
Unlike stocks, investing in bonds could be a bit challenging for retail investors as most bonds do not trade on an exchange—instead, buyers and sellers are required to negotiate over the counter (one on one) to agree a transaction price. In contrast, bond ETFs, like equity ETFs, trade on exchange and provide transparent pricing to a basket of multiple bonds in one transaction. While the stock exchange that the ETF is listed on is open, investors can buy and sell the ETF shares just like they would for a single stock. Investors do not have to become bond geeks or learn how to be expert bond investors to buy bond ETFs. Bond ETFs can be simply purchased just like stocks and give investors instant access to ready-made bond portfolios at low costs. Starting your bond ETFs journey ? Consider iBonds ETFs
What are iBonds® ETFs
iBonds® ETFs are an innovative suite of bond ETFs that have a fixed maturity date. They hold a diversified portfolio of bonds with similar maturity dates, aim to provide regular income payments and distribute a final pay out in their stated maturity year.
Why should I consider iBonds® ETFs instead of other bond ETFs available on the market?
Traditional bond ETFs do not have maturity date, as bonds within the ETF mature, and new bonds are being added. This gives a continuous, rolling exposure to bond markets.
In contrast, like individual bonds, iBonds® ETFs have a fixed a maturity date. This means that investors can select ETFs with maturity dates that align with their investment horizons, allowing them to plan for specific cash flow events more effectively.
Benefits of iBonds® ETFs
• Easily access the bond market – iBonds® ETFs give you easy access to bond investing. Through one trade, you gain exposure to a basket of bonds and can generate attractive income.
• Choose your time horizon – invest for a period which works for your needs. iBonds® are available in a range of maturities, meaning you can choose how long you want to invest your money for.
• Flexibility to adapt – if your needs change, you can buy or sell iBonds® at any time during the trading session. iBonds® ETFs trade on stock exchanges — which means iBonds® can be bought and sold just like a stock.
• Diversification – iBonds® track an underlying index and provides exposure to hundreds of bonds, across various sectors and countries. Risk: Diversification and asset allocation may not fully protect you from market risk.
Does the timing of my investment affect the yield? So do I get more if I'm in from the beginning? Or is it evenly distributed at the end?
The expected yield is dependent on the net acquisition yield of your investment. Dependent on the timing of your investment as well as on the price at which you enter the investment, you can assess your expected yield. Each individual iBonds product page has a net acquisition yield tool, on which investors can assess their net acquisition yield.
Life of an iBonds® ETF