The US economy has posted negative growth for two consecutive quarters in 2022, meaning that the United States has entered a period of recession. We have seen this in the stock market with prices across the board falling. One of the benchmark stock market ETFs, the SPY, is down almost 10% year to date

Many news outlets and media have a bearish sentiment with regard to the future of the stock market. Because of the bearish sentiment about the stock market, many might believe that keeping their money in the stock market could be dangerous and search for alternatives to keep money moving. One of these alternatives are bonds.

Just like the stock market, the bond market may be tough to navigate for inexperienced or novice investors. There are many bonds to choose from, and sometimes the payout or return on investment (ROI) is not entirely clear. There are also different grade bonds, different coupons, and different maturity dates.

There is a lot to learn about before becoming a professional bond investor. Therefore, just like the stock market helps the common investors through ETFs, the bond market also has some ETFs that can be directly purchased on the stock market. With this being said, are bond ETFs for beginners?

To answer this question, we will first define what a bond ETF is and what types of investors it attracts. Then, we will determine if bond ETFs are for beginners or for all types of investors.

Related: How Can the Bond Market Help Beginner Investors Diversify their Portfolio?

What is a bond ETF?

A bond ETF is an Exchange Traded Fund (ETF) that invests in and trades various securities like corporate and government bonds. Every bond ETF has its own strategy, from investing in corporate bonds to investing in treasury bonds, as well as short-term and long-term investment strategies. It generally requires a small management fee that is reflected directly in the price of the ETF.

Bond ETFs allow investors to  trust SEC-registered investment advisers with their money, believing that they will produce greater returns in the market than if they were to invest in bonds on their own. Investors can check every bond ETF’s previous performance and track record, which can help them gain trust in the ETF before investing.

Are bond ETFs for beginners?

We could define a beginner investor as someone getting started in stock market trading and might not have extensive knowledge about different investment vehicles. In this case, bond ETFs could be a good option as investors don’t have to actively follow every move of bonds within the ETF as it’s managed by SEC-registered investment advisers. 

Bond ETFs allow any investor to gain exposure to a portfolio of bonds, which diminishes his risk of being left with a bond that defaults. Bond ETFs can make sense in any person’s portfolio, no matter how novice or experienced he may be. It all depends on the level of risk that one wants to allocate to his portfolio. Many investment strategies can include bond ETFs in them, so bond ETFs are not reserved exclusively for beginners. 

It is true that owning bond ETFs is a simple and diversified manner to gain exposure to bonds. But this simplicity does not only attract beginners; anyone can thrive with the help of bond ETFs. So, considering everything that was just learned about bond ETFs: will you start allocation of your portfolio to bond ETFs?

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