Why bond etfs are bad?

[rajivkumar]

Hello all, I have been researching about bond ETFs recently and I am a little worried regarding the risks of these funds. I realize they are safer than stocks but I have read that they can devalue when interest rates go up and do not have a definite maturity like individual bonds. Have you ever tried this or found another way of investing in bonds with greater safety? Thanks!

 

[Eliza]

No guarantees of principal. When investing in the market, there are no guarantees on your principal, and long-term funds will be hurt more by rising rates than short-term funds will be. If you have to sell when the bond ETF is down, no one will pay you back for the decline.

 

[Gsusangrey]

Bond ETFs can be risky due to price fluctuations from interest rate changes, potential liquidity issues, and management fees. Unlike individual bonds, they don’t guarantee a fixed return at maturity, which may lead to unexpected losses in volatile markets.

 

[danisjohn]

Bond ETFs may be risky due to interest rate sensitivity, whereby an increase in rates leads to a decline in prices. They can also be deprived of the stability of individual bonds, which provide fixed maturity and payment rates. Returns can be affected by liquidity problems and tracking error. Bond ETFs may fail to perform well in volatile markets, which exposes investors to additional risk.

 

[kuldeep]

Bond ETFs lack a maturity date, so you can’t recover face value like individual bonds. They're sensitive to interest rate changes, have lower and variable yields, charge fees, and may trade below NAV. You also have less control over holdings and less predictable income compared to owning individual bonds directly.

 

[isabel]

Bond ETFs can also involve risks as there may be a spread between the market price and the price of the underlying bonds held in the ETF particularly in tumultuous market times. Bond ETFs also have liquidity risk, and can be difficult to sell at any significant price, particularly in stressed market times.

 

[brook]

Bond ETFs are sometimes risky because their value falls when interest rates rise. Liquidity issues and tracking errors can also occur. Long-term investors also have less stability, which makes them weaker than mutual funds.