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and over here I've also identified seven
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different U.S and Island domicile born
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ETFs that cover the U.S and also the
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global bond market hey what is up
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everyone in this video I'll be covering
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everything you need to know about bonds
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the different types of them its
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terminologies and share what I think are
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some of the top us and Irish domicile
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born ETFs that you can consider to have
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in your portfolio let's get started we
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all know that buying stocks is like you
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want to hold a fractional piece of a
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company meanwhile buying bonds it's more
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like you loan your money out to the
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company say you lend ten thousand
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dollars to Z Corporation for two years
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but no one would lend money out for free
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right hence Z Corporation will have to
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compensate you with the 15 interest fee
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every single month and after two years
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the bond matures and you will be paid
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back the principal which is the ten
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thousand dollars you had given out and
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now you have ten thousand three hundred
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sixty dollars in hand easy right anyways
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when you are buying bonds there are many
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types of bonds you can consider let's go
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through the three main ones firstly
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Treasury three bonds or they call it
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T-Bones which are bonds issued by the
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U.S federal government to finance the
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nation's operations and projects they
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have various maturity period ranging
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from one month to 12 under t-bill two
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years to 10 years and the T notes and
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anything longer than that they are
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called t-bonds and all U.S treasury
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bonds are benchmarks to their comparable
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fixed income categories because they are
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virtually risk-free as they are backed
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by the U.S government they can raise
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taxes and increase Revenue to ensure
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full payments so when someone is
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referring to risk-free rate they are
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usually referring to the yield of this
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U.S treasury bonds secondly we have
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municipal bonds a type of bond that are
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issued by state and local governments to
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finance various public projects
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construction of Highways Bridges schools
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and hospitals all those good stuff and
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the third one is Corporate bonds there
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are bonds issued by companies to raise
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capital for various purposes such as for
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expansion Acquisitions and also
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refinancing and other than these three
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we also have high yield bonds inflation
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protected bonds International bonds yada
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yada yada but long story short here's a
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picture of the world's 10 largest born
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ETS for your quick glance so why bonds
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right well first it offers
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diversification for your portfolio as
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the ball Market is not highly correlated
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to other asset classes like the stock
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market hence this reduces the overall
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volatility of the portfolio and helps
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you to stay chill in different economic
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cycles and next bonds can provide you
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with a stable source of income in the
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form of interest payments unlike some
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dividend paying companies that might
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announce oh it is a tough year for us so
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no dividends for you a bondholder must
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be paid with the interest payments
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regardless of what's happening in the
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market and on top of that if the company
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Dash would bankrupts and goes into
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liquidation a bond Holder will be
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treated like a preferred shareholder and
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hence get paid first rather than the
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shareholders which are usually holding
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common shares and this can be really
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helpful especially if you are
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approaching retirement or just simply
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looking for Capital preservation and hey
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not everyone wants to beat the market
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right and that's totally okay and for
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today's context we are speaking about
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the bond ETFs instead of actual bonds as
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they are more accessible than the
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traditional Bond buying the minimum cost
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of investment in a typical bond fund
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ranges from about 1 000 to 5 000 and
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they can easily go up to the millions
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and we are speaking of only one
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investment imagine you are diversifying
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into 20 different bonds so it is simply
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more practical to get an ETF having said
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that all Pros comes with cons bonds do
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have some drawbacks as well because they
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are especially sensitive to the interest
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rate fluctuations where interest rates
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increases the price of existing bonds
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are expected to fall causing some
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Capital loss and why is that so right
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well this is because when interest rate
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increases the newly issued Bond will
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offer a better yield so the existing
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bond with lower yield might not be so
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attractive anymore and to stay
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competitive they will discount their
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price hence resulting in the loss in
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capital for those who have bought in
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into the bonds before and also as
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interest rates rise investors may turn
00:04:02
to bonds for safer returns resulting in
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higher demand for bonds hence higher
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prices and hence lower bond yields and
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just like now the FED has been raising
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the interest rates like there is no
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tomorrow and you can see here that all
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Bond assets are suffering losses another
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factor to also consider when it comes to
00:04:20
bonds is the term period whether they
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are short or long-term bonds and are a
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good time rule to categorize them is to
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remember that short-term bonds have a
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maturity tenant of less than 5 years
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while long-term bonds more than 10 years
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meanwhile any bond that requires 5 to 10
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years belong to the intermediate term
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pretty simple right so just remember
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this the longer the tenure of the bond
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the more trenches they are so there will
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be more coupons hence more coupon
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payments and in general short-term bonds
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are considered to be less risky because
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they are less exposed to changes in
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interest rates and other market
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conditions let me show you an example on
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why is that so suppose the interest
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rates Rise by 25 beeps today as 0.25
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percent short-term Bond a with only one
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coupon payment left until maturity will
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be underpinning the investor by 0.25 for
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only one coupon payment and on the other
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hand long-term Bond B with 20 coupon
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payments left will be underpaid investor
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20 times more than Pawn a and obviously
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you would want to go for the one with
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higher profit right what is the point of
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buying Bond B that offers lower yield
00:05:23
when I can buy the latest Bond right so
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naturally the price of both Bond a and
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bond B will drop but Bond B will
00:05:30
definitely suffer a deeper cut in price
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and we all know our Market changes every
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single day and a two-year Bond
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definitely offers less uncertainty
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compared to a 10-year bond because of
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its shorter duration hence less exposure
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to Market volatility so to compensate
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for the shortcoming of the uncertainties
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long-term bonds usually offer higher
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yields than short-term bonds it's pretty
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easy to remember testing of longer term
00:05:53
means higher risk but higher return it
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all depends on how you like to manage
00:05:58
your risk to reward expectation so you
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are planning to buy bonds from let's say
00:06:02
Z Corporation because why not right but
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how do you know whether ziet is able to
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pay money on time consistently it is
00:06:08
Impractical to take out all the news and
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do background investigation yourself so
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this is where the credit rating will
00:06:14
come in handy and just like how banks
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will evaluate you when you're applying
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for loans right they are also rating
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agencies out there that evaluate the
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credit worthiness of these companies
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issuing bonds with the three main
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players being Moody's standard and poor
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and fix rating they give opinions on the
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credit worthiness of the bond issuers
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based on the ability of the company to
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make interest payments and also repay
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the loan and ratings allow investors to
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understand How likely a bond is to
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default or to fail to make its interest
00:06:43
and principal payments on time basically
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higher rating means the risk of
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defaulting is lower which also means
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it's probably a safer asset that can
00:06:51
issue bonds with lower yield and take a
00:06:53
look at this cheat sheet the red line
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divides bonds into two any bond that is
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rating above the line is referred to as
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in investment grade whereas the rest
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that falls below the red line is
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normally what we call junk bonds and to
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give you a better picture U.S treasury
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bonds are considered the safest asset
00:07:09
and all agencies have given the highest
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possible credit rating of Triple A
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meanwhile the latest standard and post
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credit rating for Malaysia stands at a
00:07:17
minus with a stable Outlook just to give
00:07:19
you a sense of it now back to your
00:07:21
investment in bonds issued by zip
00:07:22
Corporation let's say you're holding US
00:07:24
dollar but zip corporation is located on
00:07:27
a cute little island in the Pacific
00:07:28
Ocean and uses a pretty seashell as
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their currency and what will happen is
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the fluctuation of value in the
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currencies between US dollar and the
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seashell currency will affect your
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return as well and to free yourself from
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the worries of currencies you can choose
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US dollar H bonds as they are funds that
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aim to reduce the impact of currency
00:07:46
fluctuations and on the other hand if
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you think the seashell currency has its
00:07:51
potential and may bring you extra return
00:07:52
and hedge funds may be more suitable for
00:07:55
you and it is important to note that
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whether a h or an age not one is better
00:08:00
or worse off than each other after all
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it all depends on your personal
00:08:03
investment Outlook and asset allocation
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in the form of currency diversification
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now on to the more exciting part of the
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video the best born ETS of all and
00:08:12
whatever I'm going to introduce you here
00:08:14
will all be available on interactive
00:08:16
brokers so do check out the link in the
00:08:18
pin comment down below to open an
00:08:20
account for yourself in my opinion Total
00:08:22
Bond is easily the best option as it has
00:08:24
exposure across various markers and bond
00:08:27
types including treasury Municipal
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corporate bonds Etc and they often
00:08:31
include short to long-term bonds and
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they would cherry pick investment grade
00:08:35
bonds to maximize diversification at the
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same time minimize the risk and the
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reason why I picked them here is because
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I'm assuming you are looking at bonds
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for the purpose of capital preservation
00:08:45
and would probably appreciate more asset
00:08:48
diversification so hopefully my
00:08:50
selection here is helpful to you and
00:08:51
over here I've also identified seven
00:08:53
different us and Island domicile born
00:08:55
ETFs that cover the US and also the
00:08:57
global bond market and in case you are
00:08:59
new here Island don't miss out ETS
00:09:01
basically give you additional tax
00:09:03
benefits that I've explained in detail
00:09:05
before so feel free to refer to this
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video for further explanation so right
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here on the left under us domicile born
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ETS we have AGG ETF that is The
00:09:14
Benchmark of many total Bond ETFs it
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focuses in U.S investment grid bonds and
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is traded with US dollars since it is
00:09:20
listed on the new extra exchange and it
00:09:22
comes with a very low expense ratio of
00:09:24
0.03 percent one of the cheapest if not
00:09:27
the cheapest you can get in comparison
00:09:28
to all the other ETFs here and the
00:09:30
second Total Bond Market ETF is the BND
00:09:33
ETF which is very similar to AGG it also
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invests in U.S investment grade bonds
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with the very same low expense ratio of
00:09:40
0.03 however it is listed on NASDAQ and
00:09:43
the coverage is slightly different AGG
00:09:45
has top coverage of U.S treasury Federal
00:09:48
and government National Mortgage while
00:09:50
BND focuses on U.S treasury Triple B and
00:09:53
a rating bonds and between these two I
00:09:55
can say they are more or less the same
00:09:57
both are equally large and liquid and by
00:10:00
judging from their past performance BND
00:10:02
performs slightly better than AGG and
00:10:04
their original rate is at 0.04 with the
00:10:07
current 0.03 expense ratio being an
00:10:10
offer rate that will only last until
00:10:11
2026 not to mention that the yield in
00:10:13
BND is also higher too so between these
00:10:16
two I would say BND is probably a better
00:10:18
option however if your preference are
00:10:20
for bonds issued outside of the U.S
00:10:22
market then B and DX may be a better
00:10:24
option because it covers bonds from all
00:10:26
around the world with the top coverage
00:10:28
of mostly Europe and Asia Pacific it is
00:10:30
traded in US dollar listed on NASDAQ but
00:10:33
the expense ratio is slightly high at
00:10:35
0.07 still within acceptable range if
00:10:38
the new wise it is slightly lower but it
00:10:40
outperforms the AGG and pnd and the 5n
00:10:43
one year period it also worth noting
00:10:45
that all three US dollars out Total Bond
00:10:47
ETFs distribute dividends on a monthly
00:10:50
basis since they are all Distributing
00:10:52
ETFs by nature and over on the right
00:10:54
hand side I have four different Island
00:10:56
domicile Total Bond ETS for you two of
00:10:58
them invest in the US dollar denominator
00:11:01
investment grade Bond while the other
00:11:03
two invest in the global bond market
00:11:05
they are basically the mirror version of
00:11:07
the US ETS but don't miss out in Island
00:11:09
instead and all bonds suggested here are
00:11:11
traded in US dollar and listed on London
00:11:13
Stock Exchange in the UK so the two on
00:11:15
the left are iua and iuag ETF both
00:11:18
investing in the U.S investment grade
00:11:20
bond with their top coverage being the
00:11:22
U.S treasury Federal National Mortgage
00:11:24
and federal Home Loan mortgage but as
00:11:26
with all Island domicile ETFs their main
00:11:29
drawback would be their higher expense
00:11:31
ratio at 0.25 but you offset that off
00:11:34
with the tax benefits you get and
00:11:36
basically they are almost the same
00:11:37
except iuaa handles their dividends by
00:11:39
accumulating them while IU AG
00:11:41
distributes 2.11 dividend yield every
00:11:44
six months and the next two in line we
00:11:46
have aggu and a Triple G ETF with aggu
00:11:49
being an accumulating Bond ETF while a
00:11:51
Triple G is a Distributing fund that
00:11:53
distributes dividends semi-annually with
00:11:55
a yield of 1.55 per annum and other than
00:11:58
that they both invest globally with
00:12:00
their top three coverage being the US
00:12:01
Treasury Japan government and Federal
00:12:04
National Mortgage and on top of that
00:12:06
they share the same expense ratio of 0.1
00:12:08
percent much lower compared to iuaa and
00:12:11
iuag and for what is worth among all
00:12:14
born ETS offered here I would say AGG or
00:12:17
pnd is the best simply because of their
00:12:19
lower expense ratio and that's so
00:12:21
important because Bonds in general do
00:12:23
not make as much profit as stocks and if
00:12:26
the expense ratio is high they will
00:12:28
probably just eat all the gains and
00:12:30
there'll be no meat left for you so the
00:12:32
million dollar question should you
00:12:33
invest in a bond ETF well as much as I
00:12:36
hate to say it all depends on your
00:12:38
financial goal value investing Ledger
00:12:40
and Benjamin Graham has recommended
00:12:41
putting a portfolio evenly between
00:12:43
stocks and bonds to preserve Capital
00:12:46
while still achieving some growth at the
00:12:48
same time and he suggested having
00:12:49
between 25 to 75 of your investments in
00:12:53
bonds depending on the market conditions
00:12:55
so if your goal is capital preservation
00:12:57
but you don't mind a lower return and
00:12:59
potentially under buffering the market
00:13:01
like the S P 500 then I would say by all
00:13:03
means go for it Total Bond ETFs offer an
00:13:06
intensive amount of diversification to
00:13:08
your portfolio so if you see yourself as
00:13:10
not a risk taker or not a risk taker yet
00:13:12
and you like stability and okay with
00:13:14
minimum losses do consider the Total
00:13:17
Bond ETFs although bonds are usually
00:13:19
labeled as a safer assets it is also
00:13:21
worth noting that Bond ETFs are subject
00:13:23
to interest rate changes the price of
00:13:25
Market may fall when interest rate is
00:13:27
hacking so sometimes safe is probably
00:13:29
not so safe after all and as for myself
00:13:31
I feel like I'm still in the early days
00:13:33
of investing so Capital preservation is
00:13:35
not really my current goal perhaps one
00:13:37
day when my portfolio grows huge enough
00:13:39
or when I'm ready to have fun and retire
00:13:41
then yeah bonds would probably be one of
00:13:44
my considerations alright if you found
00:13:46
this video helpful you can check out
00:13:47
this video if you would like to know how
00:13:49
much money you should allocate for bonds
00:13:51
and how much for stocks thanks for
00:13:53
watching and as always I will see you in
00:13:55
the next one
