How to invest in bond ETFs: 3 Bond ETFs to consider in 2025

How to invest in bond ETFs: investing in bond exchange-traded funds can be an effective way to gain exposure to the market, here are 3 Bond ETFs to consider.

How to Invest in Bond ETFs

Understanding bond ETFs, investing in bond ETFs can be an excellent addition to your portfolio, offering diversification, consistent income, and relatively low risk compared to other asset classes. Bond ETFs, or exchange-traded funds, track indexes of bonds and trade on stock exchanges, similar to stocks. If you're considering them as part of your investment strategy, this guide will help you understand how to get started and highlight three top bond ETFs to consider.

Step 1: Understand How Bond ETFs Work
Before diving into the market, take time to understand what bond ETFs are and how they function. Each bond ETF tracks the performance of a specific bond index, which could focus on corporate bonds, municipal bonds, government bonds, or even international debt securities. Unlike individual bonds, which you hold until maturity to earn fixed interest payments, bond ETFs give you exposure to a diversified basket of bonds.

Bond ETFs are traded on exchanges, allowing you to buy or sell shares throughout the trading day at the market price. This liquidity makes bond ETFs more flexible than holding individual bonds outright. Additionally, bond ETF dividends—which consist of the interest payments from the bonds the ETF holds—are paid out regularly, making them an appealing choice for income-focused investors.

Step 2: Define Your Investment Goals
Bond ETFs serve different purposes for different investors. For example, if you’re seeking stability in an otherwise volatile portfolio, bonds can help soften the blow of equity market fluctuations. Alternatively, retirees often invest in bond ETFs for a steady income stream. Understanding your financial goals—whether it's steady income, capital preservation, or diversification—will help you choose the right bond ETFs for your needs.

Additionally, consider your risk tolerance. Government bond ETFs, for example, tend to carry minimal risk but offer lower returns. Corporate or high-yield bond ETFs, on the other hand, may provide higher potential returns but come with increased risk.

Step 3: Choose a Platform or Broker
Investing in bond ETFs starts with selecting a brokerage platform or investment app. Many online brokers offer commission-free ETF trades, giving you access to hundreds of options with no extra fees. Look for platforms that provide robust research tools, easy search functions for bond funds, and portfolio management features. Examples of brokers include Vanguard, Charles Schwab, Fidelity, and Robinhood, though the best choice will often depend on where you’re based and what services you need.

Step 4: Select Bond ETFs That Align with Your Strategy
With thousands of bond ETFs available globally, selecting the right one might feel overwhelming. Focus on ETFs that match your goals in terms of credit quality, maturity periods, and geographic exposure.

3 Bond ETFs to consider

1. iShares Short Treasury Bond ETF (SHV)
Fund Overview
Who says Treasury bills are dull? With SHV, investors gain access to the most liquid and shortest-term bonds issued by the U.S. government, ensuring stability and flexibility. This ETF focuses on Treasury bills maturing in 3 to 12 months, offering a highly targeted approach to short-term safety and liquidity.

Why SHV Is A Top Choice
A deeper look at SHV reveals a surprising fact for many investors—it frequently out-yields longer-duration alternatives, such as GOVI, a fund investing in bonds maturing up to 30 years. The reason? Current Federal Reserve policies have elevated short-term interest rates, making Treasury bill yields among the highest on the yield curve even years after the initial rate hikes. This makes SHV a cost-effective and highly competitive option, especially for investors seeking reliable income with minimal risk. Unless short-term rates experience a significant decline—which seems unlikely in the near term—SHV remains a standout in the world of bond ETFs.

2. Invesco Equal Weight 0-30 Year Treasury ETF (GOVI)
Fund Overview
GOVI offers a unique and systematic approach to Treasury bond investment by effectively creating a bond “ladder” within a single ETF. By equally allocating around 3.3% of its portfolio to each of the 30 maturity years, GOVI provides a broad and balanced exposure to U.S. Treasury bonds.

Why GOVI Is A Top Choice
Navigating today’s unpredictable interest rate environment is no easy task. Inflation has decreased but remains a lingering threat, while policy uncertainty looms with a new U.S. administration. With these factors in mind, GOVI’s equal-weight laddered strategy avoids leaning heavily on any particular duration on the yield curve, offering stability and balance during volatile times. As bonds mature in the fund, the portfolio is automatically rebalanced, ensuring consistent diversification. For those wary of timing the bond market, GOVI provides a simple, effective, and resilient solution.

3. iShares 20+ Year Treasury Bond Buywrite Strategy ETF (TLTW)
Fund Overview
For investors seeking to add an innovative twist to their Treasury bond portfolios, TLTW provides the perfect solution. This ETF starts with a foundation in the iShares 20+ Year Treasury Bond ETF (TLT), which focuses on long-term Treasuries, and adds an income-enhancing strategy by writing covered call options. This additional layer generates higher income yields while maintaining exposure to the potential upside of the underlying bonds.

Why TLTW Is A Top Choice
TLTW’s unique buywrite strategy shines during stable or declining interest rate environments. The extra income derived from selling call options bolsters investor returns, often delivering 2-3 times the income of owning TLT independently. Additionally, its structure allows for participation in price gains if long-term rates fall. However, it’s worth noting that TLTW carries risks, particularly when long-term rates rise significantly; while the call premium cushions against losses, it may not completely offset them. For savvy investors looking for higher income with measured risk, TLTW represents a compelling option in Treasury bond investing.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.