How Defined-Maturity Bond ETFs Could Help You Outperform the S&P 500 Over the Next 5-10 Years

The launch of Vanguard's BondBuilder Target Maturity ETF suite, with a modest 0.08% expense ratio, has sparked a new trend in bond investing. While younger generations and even some older investors may have neglected bonds, these new ETFs offer an opportunity to simplify bond investing. BondBuilder Target Maturity ETFs, now valued at $70 billion, function similarly to traditional bonds, with each ETF focusing on a specific maturity date.

This allows investors to construct their own bond ladder, managing duration risk more effectively. Despite their potential, these ETFs are not without risk; for instance, the risk of capital losses if sold before maturity during a rate spike. However, when held to maturity, they offer the potential for 5%-plus yields and capital gains, making them an attractive option in a rising interest rate environment.

Rob Isbitts, a semi-retired CIO and Barchart columnist, recommends using these ETFs as the foundation of a bond portfolio, utilizing a variety of ETFs with different strategies to maximize returns across various market conditions.