Bonds: Rethinking Some 'Dirty Little Secrets'


  • It seems that many have a very negative view of bonds in the current environment.
  • There are legitimate risks involved in investing in bonds. The key is understanding them and being able to keep sight of the big picture.
  • In this article, I will, either through references or within the article itself, touch on 4 different risks related to investing in bonds.
  • The article will then tackle the question of investing in individual bonds versus one or more ETFs.
  • Finally, we will examine a table with helpful data on 4 popular ETFs, and what we can learn from such an examination.

I have recently published several articles having to do with bonds here on Seeking Alpha. Due to the unsettled geopolitical and economic environment in which we find ourselves, I have been thinking about the value of short-term bonds and cash, and even more recently reviewed the question of including foreign bonds in a portfolio, despite relatively low current yields.

Interestingly, I find the overall reaction to bonds in the current environment to be quite negative. Both in the comments section of my own articles and in articles from other authors, I find this to be the case. It is not my intent to bash the viewpoint of others, simply to add my voice to the discussion. However, I must admit that I sort of stole the 'dirty little secrets' part of the title from a 2013 article right here on Seeking Alpha. You can look it up on your own if interested.

However, it is my goal to address some objections I have encountered along the way which I see as either overly trite or simplistic. Examples:

  • "It's OK to buy carefully-selected individual bonds and hold them to maturity, but don't buy a bond mutual fund or ETF."
  • "Why would I want to buy a bond ETF right now, when an entire year's dividends could be wiped out in one day?"

It's not that either of these statements is categorically wrong. However, by the time I am done with this article, I am hoping to add in a little nuance that may help you as you make your own decisions. Along the way, I am hoping to explain a couple of reasonably advanced concepts related to bonds in an easily-understandable way. I will also show how these concepts play out on a few bond ETFs, and how this may affect your choices as well.

This article was written by

ETF Monkey profile picture
Build sustainable portfolio income with premium dividend yields up to 10%.
I am a recently-retired individual investor and have managed my own investments for over 35 years. My professional background is in the finance area. I believe that the benefits of investing, and the market, should be understandable and available to everyone, including those with little or no financial background. My hope is to explain concepts simply, taking much of the mystery and fear out of the process.  To keep up with my very latest, please subscribe to my Substack newsletter and Twitter feed. In addition to my personal writing, I am a contributing author for Hoya Capital Income Builder

Disclosure: I am/we are long AGG, BND, BSV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult with their personal tax or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

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