So here’s your predicament: you think the markets are overvalued and you still want yield, but yields are still at near all-time lows and long term bonds suffer from extreme rate risk (where rising yields will eat away at bond prices). And you can’t invest in Canadian Real Estate because it is in one of the largest bubbles in history. And, finally, you do not want to pick and choose bonds yourself i.e. you want a bond fund.
If you just invest in a short-term, medium-term, or long-term bond ETF, (for example: BMO Short Bond ETF Ticker: ZCS) you are still exposed to uncertainty regarding rate risk. The problem is that these funds are perpetually recycling your capital into new short term bonds. Unlike purchasing a bond directly, they do not have a specific maturity. So, how do you invest in bonds within an ETF that DO have a specific maturity.
Continue reading “ETF Bond Investing and Avoiding Rate Risk: Target Maturity Bond ETFs”