I Own a Popular Bond ETF With 1 Big Risk -- This Short-Term Bond Fund Might Be a Better Buy
Bond investors are feeling antsy about interest rate risks for longer-duration bonds.
Overview
There's a lot of discussion among bond investors right now about duration and interest rate risk. Longer-duration bonds, such as bonds that repay their investors over 10 to 20 years or more, have a risk of losing value if interest rates go higher in the future. When interest rates go up, bond prices go down -- and that's bad for investors who currently own bonds. Longer-duration bonds are more sensitive to this risk.
The recent rise in interest rates during 2022 is a big reason why the Vanguard Total Bond Market ETF (NASDAQ: BND) has delivered disappointing annualized returns of only 0.19% over the past five years. This popular ETF (exchange-traded fund) holds more than 11,000 bonds and charges an ultra-low expense ratio of 0.03%. But it has one big problem: interest rate risk.
Details
Let's take a closer look at why longer-duration bonds can be riskier for investors -- and why a short-term bond ETF might be a better buy.
Source
Originally published at www.fool.com.