Why should I not invest in bond ETF?

[Njau]

 Help me understand why should I not invest in bond ETF?

[Faraz]

Many significant benefits accompany bond ETF. One of them is that you will get a regular income, which is usually released in the form of coupon rates every month. Bond ETF are also broadly diversified, and they offer you low costs of investing. These ETF, however, come with various drawbacks. The good thing is that you can be able to mitigate these problems.

Bond ETF usually respond to the current interest rates, just like the individual bonds. If the prevailing interest rates are rising, the prices of bond ETF fall so that they can compete with the newly introduced interest rates. Contrarily, when the interest rates are low, the bond prices will rise.

You can perform well in individual bonds, unlike in a bond ETF, where your manager will resolve the amount of interest rate that they will undertake. Nonetheless, there are bond ETF that can give you floating-rate funds. These funds are unsusceptible to the interest rate risk. The funds also change the number of interest rates to what is currently available in the market.

Investing in bond ETF may be bootless, especially if you are a day trader and like responding quickly to various news and events that may change the market prices. This is because only a few mutual funds will allow you to reinvest your funds until the trading day closes. Bond ETF are a basket of securities that track an index. It solves the issue experienced in other bond funds by allowing you to trade your shares each time the market is open.

The passiveness in bond ETF is also a challenge. You track the performance of an index, and if the firm is large, the performance should be enormous. You look at maximizing the interest rate you will get as you minimize your risks.

To get a good manager for your funds is hard. The best of them are usually costly and what you are looking for is to minimize your costs and make additional profit. You will also find yourself paying retail prices.