Comparing Long-Term and Short-Term Corporate Bond ETFs: Which Is Best For Your Investment Needs?
WHAT YOU SHOULD KNOW
- Exchange-traded funds (ETFs) provide an opportunity to tailor investments to a desired timeline and risk profile.
- The Vanguard Long-Term Corporate Bond ETF (VCLT) has an annual dividend yield of 4.56%, or $3.28 per share, and tracks the statistics of a market-weighted corporate bond index.
- The BlackRock Ultra Short-Term Bond ETF has a dividend yield of 0.95%, or 47 cents per share annually, and aims to generate current income while preserving capital.
Corporate bonds can be lucrative for investors as they offer higher returns than government bonds. It requires careful consideration of various factors, such as credit risk, interest rates, and Federal Reserve policy. Investors must determine the type of bond that best suits their needs.
When investing in bonds, it is important to understand the differences between short-term, medium-term, and long-term bonds and the associated risks. Short-term bonds typically have a maturity of five years or less, while medium-term bonds usually have a maturity of between five and twelve years. Long-term bonds, on the other hand, typically have a maturity of more than twelve years.
Some investors may prefer to invest in actively managed exchange-traded funds (ETFs) that allow them to target specific maturities. This type of ETF provides an opportunity to tailor their investments to their desired timeline and risk profile.
The Vanguard Long-Term Corporate Bond ETF (VCLT) has an annual dividend yield of 4.56%, or $3.28 per share, which is paid out in monthly installments. VCLT is characterized by an inconsistent dividend history, as it does not always raise its dividends. It tracks the statistics of a market-weighted corporate bond index. The dollar-weighted average maturity is long-term. The fund has a total of $4.8 billion in assets under management, with a turnover rate of almost 36%.
The BlackRock Ultra Short-Term Bond ETF has a dividend yield of 0.95%, or 47 cents per share annually, which is paid out monthly. This ETF has a mixed record of increasing its dividends over time. The BlackRock Ultra Short-Term Bond ETF aims to generate current income while preserving capital. To achieve this, the fund invests in a wide array of U.S. dollar-denominated investment-grade fixed- and floating-rate debt securities and money market instruments with short-term maturities.
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