- A number of cheap, easy-to-use bond ETFs are available to average retail investors
- Fixed-income market does not have the level of liquidity that most stock investors are accustomed to
- On the other hand, fixed-income investors may turn to bond ETFs, which track a portfolio of bonds and are traded on an exchange like a stock
Investors who are seeking a balanced and diversified investment portfolio will likely include some fixed-income assets in the mix. However, debt securities are more difficult for most to to acquire, but luckily for the average retail investor, there are a number of cheap, easy-to-use bond exchange traded funds to choose from.
“Having any percentage of bonds in your portfolio, 40 percent or otherwise, is a good idea because bonds can help provide income and some stability,” writes Matt Tucker, head of iShares Americas Fixed Income Strategy at BlackRock, for CNBC. “There are a wide variety of investments that we can use to fill the space, but some investments are going to be more efficient than others.”
To get a sense of how debt securities are traded, individual bonds are bought and sold over the counter. In the OTC market, there is no exchange, so buyers and sellers will have to negotiate a price. If an investor is interested in a bond, you would have to contact individual bond dealers and find one that’s willing to sell.
Consequently, the fixed-income market does not have the level of liquidity that most stock investors are accustomed to. Individual bonds can be hard to track down and quotes can widely vary, so it is difficult to efficiently price the securities.
On the other hand, fixed-income investors may turn to bond ETFs, which track a portfolio of bonds and are traded on an exchange like a stock.
“You see the price at which you can buy and sell the ETF, allowing you to better make an informed decision about your bond investment,” Tucker said.