If you’re thinking about putting money into bond exchange traded funds (ETFs) rather than mutual funds, you’re not alone.
Fixed-income ETFs have pulled in nearly $344 billion through Oct. 31 this year, compared with $138 billion going into fixed income mutual funds, according to Morningstar Direct. It’s part of the larger trend of investors preferring ETFs: In October alone, about $74 billion flowed out of mutual funds, while ETFs attracted $166 billion.
And while ETFs have some advantages over mutual funds, and bonds are viewed as safer investments than stocks, experts say it’s important to know what you’re buying.
“You have to remember the role of bonds in a portfolio,” said Dan Sotiroff, senior analyst for passive strategies research at Morningstar. “It’s usually to serve as a ballast — and how big of one is something you have to sort out on your own or with your advisor.”
Both mutual funds and ETFs let you invest in a fund that holds a mix of underlying investments. The advantages of ETFs range from lower costs to tax efficiency to their trading all day in the open market. (Mutual funds are only priced once a day, after the markets close at 4 p.m. Eastern Time.)
