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Has anyone used iShares Target Date iBond ETFs to build their bond ladder? If so, I’d love to know your experience as I start to consider my own ladder.
Here is how iShares describes this product: “iBonds exchange-traded funds (“ETFs”) are an innovative suite of bond funds that hold a diversified portfolio of bonds with similar maturity dates. Each ETF provides regular interest payments and distributes a final payout in its stated maturity year, similar to traditional bond laddering strategies. However, the funds’ unique structure is designed to help investors easily build bond ladders with only a handful of funds.”
The expense ratios on the iBond Target Date Maturity ETFs range from 7 basis points for U.S. Treasuries; 10 bps for TIPS, Municipals, & Investment Grade Corporate; and 35 bps for the “High Yield & Income Corporate” ETF.
7 – 10 bps seems extremely reasonable for the increased diversification and professional purchasing/management of iBonds. Anyone care to comment?
Howard, your comments and experience using the Investment Grade Corporate iBond is exactly what I was looking for. Thank you!
Paul, the TIPS iBond has an expense ratio of .1%, or 10 bps. I’m not sure how to answer your specific question, though. Here’s a recent Morningstar article that may be helpful, discussing the use of iBonds to build a TIPS ladder: https://www.morningstar.com/portfolios/how-use-tips-your-portfolio
For others, iBonds are not solely a TIPS product. As my original post indicates, there are 5 distinct ETFs in the “iBond family.” https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders
This piece might be useful: Let’s look at the new iShares Defined-Maturity TIPS ETFs | Treasury Inflation-Protected Securities
Trying to understand buying iShare iBond TIPS compare to US TIPS.
If I build a 10 year TIPS bond ladder today (7/25) for yearly inflation income using tipsladder.com for $100,000 I would cost me $925,329.
How would I do the same thing using iShares (TIPS) IBIB through IBIL to generate $100,000 of inflation income.
What would it cost me using iShares iBond TIPS?
I have two ladders using IShares Target Date ETFs: one in my taxable account and one in an IRA. Both are in the Investment Grade Corporate series. The reason I chose them is because I am not comfortable analyzing an individual bond. I assume Blackrock has people who do this for a living. And, if I’m not going to hold many bonds, I am concerned about lack of diversification. I also assume that if I am buying 1 bond, I will pay the maximum spread, whereas when Blackrock buys bonds, I assume they pay the minimum spread.
The ETF option provides me with a diversified mix of bonds maturing at a specific date. In building a ladder, I know that each step of the ladder will mature on the same date each year.
One comment below said they can lose money. Well, yes, they are ETFs so the price can fluctuate each day. But the portfolio is purchased and held to maturity. Just like an individual bond, the bonds held will mature at their face value, which may be higher or lower than your purchase price. How is this different than buying an individual bond? If they are traded before maturity, they can lose money too.
I’m also not concerned about paying 10 basis points in expenses in exchange for a diversified portfolio that I don’t have to select. I suspect if I were doing the buying, much of the fee would be eaten up in the transaction costs.
One risk I have read about is “declining yield risk”, which the prospectus defines as: “During the six months prior to the Fund’s
planned termination date, the Fund’s yield will generally tend to
move toward prevailing money market rates and may be lower
than the yields of the bonds previously held by the Fund and lower
than prevailing yields for bonds in the market.” Basically, as the bonds start to mature, the proceeds get reinvested in the money market. This was a concern particularly when money market rates were close to zero. It seems like it is less of a risk now and as long as rates stay reasonable. The way to counteract this risk is to sell the ETF six months before maturity and purchase the next rung in the ladder with the proceeds.
I don’t claim to be an expert, but it seems like many of the comments to this post are overly negative about a useful product.