In case you haven't noticed, bonds are the new black.
Shaken by recent years' stock market turmoil, investors are showing no sign of dialing back their appetite for fixed income. According to data from the Investment Company Institute, bond funds attracted more assets than equity funds for the past 30 straight months. That amounts to billions and billions of dollars heading out of stocks and into bonds. And given recent economic weakness, it doesn't look like investors are terribly motivated to make peace with stock funds anytime soon.
While this massive flight-to-safety movement will likely leave many investors disappointed when interest rates eventually head north, bonds should still be an essential part of every investor's portfolio. While younger folks with decades still ahead of them probably don't need more than 10% or so of their portfolio in bonds, individuals in retirement should have at least half of their assets, at a bare minimum, allocated to fixed-income securities. If you're wondering how you can best stock up on bond exposure, you might want to consider some of the following exchange-traded fund options.
Taking in the big picture
If you're looking to get wide exposure to the bond market in one stop, a broad-market ETF is probably your best bet. One of the larger bond ETFs around is the iShares Barclays Aggregate Bond Index
Likewise, the Vanguard Total Bond Market ETF
Special teams funds
While inflation certainly hasn't been a threat recently, plenty of investors remain convinced that prices are set to rise exponentially as soon as the economy can get even marginally back on track. That mind-set has no doubt contributed to the iShares Barclays TIPS Bond ETF
Of course, investors shouldn't forget that there is a global bond market beyond U.S. borders. To get cheap exposure to worldwide government bonds, you might want to consider SPDR Barclays Capital International Treasury Bond
Given that interest rates pretty much have nowhere to go but up, bond investors would be well-advised to keep an eye on the duration of their bond funds. A higher duration means that a fund's price will suffer more when interest rate rise. If you want to protect yourself from falling bond prices, a smart move would be to invest in a few bond funds with shorter-term outlooks.
If you're looking toward government securities, the iShares Barclays 1-3 Year Treasury Bond ETF
Whatever bond-fund investments you choose,remember to moderate your expectations for returns down the road. While bonds will continue to play an important role in the market, return likely won't be as stellar as they were in years past. But by sticking with the right investments, investors should be able to navigate the bond market fairly well, no matter what lurks around the corner.
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