In this Article of “Best European Bond ETF” we would discuss in detail on Bonds and help you decide where you should invest.

If you are building an investment portfolio you have to ask this question, how much percent of bond should you as investor have in your investment portfolio.

Investors need to decide on asset allocation specifically between stocks and bonds, do investors need to invest 50% stocks 50% bonds or do they go with 100% bonds and 100% stock or anything in between. These are important things you have to think about when you’re developing your investment portfolio .

Below are the point we will talk about in this Article:

  • We will talk about bonds to help you make that decision .
  • We’re going to show you where and how to buy them
  • We’re going to talk about some of the specific bonds that we think you should look into if you’re interested in investing in bonds
  • We will talk about what we think about investing in bonds for financial independence

Let’s first talk about basics of Bonds :

Companies issue bonds because they need to borrow money . When these bonds are purchased by investors, they can use that money.

You can  buy them in a number of different ways . When you buy a bond you are loaning that money to the government to a company for a certain period of time and in exchange they pay interest on that money

For example , let’s say an investor buys a 10 year bond for $5000 and the bond issuer say it’s a local government that promised to pay you interest of 2.5% interest in exchange on their $5000. So you get 2.5% interest on that $5000 for ten years and at the end of those ten years which is when the bond reaches maturity you get your $5000 back.

There are three common types of bonds that you can buy .

  1. Corporate bonds : These are bonds issued by corporations like Coca Cola and Apple. Whenever these companies want to raise money or borrow money they can release bonds

Note :  Not all bonds are created equal, there are two types of Corporate Bonds:

  • Investment Grade Corporate Bonds :
    • These types of Corporate Bonds are bonds with excellent credit ratings and because of their really good to excellent credit ratings they are seen as safe borrowers . Because of this the bonds that these Corporates issue tend to have lower interest rates.
  • High Yield Bonds :
    • These Bonds are sometimes called Junk Bonds. These types of bonds are issued by companies with poor credit ratings and because they had these poor credit ratings they need to entice investors to loan them money or to invest in their bonds . They do this by issuing bonds with higher interest rates .

Point to Note : This look fascinating because you can have a corporation that has investment grade corporate bonds . They are excellent corporation , so your return on your investment is going to be much less . When you want to take risk then you can go after these high yielding bonds . The return on those is going to be significant but you have a higher chance of default with those types of bonds

2.  Municipal Bonds : These are often referred to Munis . These types of bonds are issued by local governments like the state or a city . They use this money in order to generate money for special projects or services offered through that local government . These municipalities like cities and States and counties , they also have credit ratings because they manage money . Sometimes they don’t manage their money well and they don’t pay their bills which also includes payments to their bondholders . Be very careful when you’re selecting bonds by municipalities .

3. Federal Government Bonds : Unlike Corporate Bonds and unlike those municipal bonds the federal government bonds are the safest as they are backed by the full faith and credit of the State. Because of their high safety ratings, they have very low interest rates and they tend to have the lowest interest rates out of three types of bonds .

European government bonds carry more risk than U.S. government bonds, reason being its dependent on market conditions and the health of European Economies.

Below are our Top 3 European Bond ETF.

These funds have a high allocation to European countries. These funds are selected based on long-term stability, assets under management and low Expense Ratio.

  • iShares International Treasury Bond (IGOV) :

iShares International Treasury Bond (IGOV) is an ETF that holds treasury bonds from most of the European countries . Holdings of this ETF also include treasury bonds from Japan, France, Italy and Germany.

  • iShares 1-3 Year International Treasury Bond ETF (ISHG) :

This iShares International Treasury Bond ETF (ISHG) tracks “S&P/Citigroup International Treasury Bond” Index. This Bond ETF invests in developed market outside of the U.S. Maturity period of Bonds under this ETF are 1 to 3 years.

  • SPDR Bloomberg Barclays International Treasury Bond ETF (BWX) :

The SPDR Bloomberg Barclays International Treasury Bond ETF (BWX) has investment in European and emerging markets. BWX tracks “Bloomberg Barclays Global Treasury Ex-US Capped” Index. ETF has exposure to countries like  China, South Korea, Indonesia, Denmark, Belgium and Canada.

Bond ETFs are a good way to invest as they avoid the Risk of having one Bond and that Bond defaulting in the payment. Bond ETFs track all types of Bond and make major investment .

Hope this article provided enough information for you to start investing in Bonds . Do check our other articles