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Zecco.com » General Investing » Portfolio Building » Bond Funds vs. Bond ETFs
Last post 02-01-2007, 4:20 AM by blackhawksc. 4 replies.
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  •  01-18-2007, 10:27 AM 3558

    Bond Funds vs. Bond ETFs

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    On a personal note, I've been strategizing about my IRA investments.  I have been looking at how to build a diversified portfolio across large-cap, small cap, international stocks, bonds, and cash.  Of course, I invest at Zecco, so I'm looking at ways to leverage free stock trades to maximize my returns. My current thoughts are to invest in all ETFs.  For stocks ETFs, this is almost completely straightforward: Low cost basis indexes.  Bonds are little more tricky, I can invest in Bond Funds or Bond ETFS.  The benefits of bond ETFs are pretty well layed in in the Investopedia Article. Seems like a pretty resonable investment. I'm trying to find the down side I might have missed, thoughts?

  •  01-26-2007, 5:37 PM 3782 in reply to 3558

    Re: Bond Funds vs. Bond ETFs

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    The downside I would see with a bond ETF is that it is impossible to lock in a rate.  Since the fund is aquiring new bonds to replace the mature bonds, the interest rate it collects on those bonds will fluctuate.  Not a huge disadvantage if your goal is lower the beta on your overall portfolio by means of bonds.

  •  01-27-2007, 2:26 AM 3792 in reply to 3782

    Re: Bond Funds vs. Bond ETFs

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    I guess you can say the same thing about a stock ETF as well. If the fund receives more assets, it has to buy the stocks in the index at a higher price if the stock went up. Indexes don't guarantee a price or yield, it just shows you what you would get.

    By the way, with all these exotic ETFs coming out, like commodities based, currency based, etc it's surprising that there is no international bond ETF... Right now I'd really like to hold onto some Euro/Pound denominated assets to hedge against the falling dollar.

  •  01-29-2007, 7:58 PM 3826 in reply to 3792

    Re: Bond Funds vs. Bond ETFs

    Reply Quote
    blackhawksc:
    By the way, with all these exotic ETFs coming out, like commodities based, currency based, etc it's surprising that there is no international bond ETF... Right now I'd really like to hold onto some Euro/Pound denominated assets to hedge against the falling dollar.


    I think you'll find those listed as ETNs (Exchange Traded Notes).

  •  02-01-2007, 4:20 AM 3890 in reply to 3826

    Re: Bond Funds vs. Bond ETFs

    Reply Quote
    They have some currency ETFs such as FXE, which hold actual cash. But I'd rather have higher yielding debt securities denominated in these currencies.
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