I am not a fan of bond exchange-traded funds (ETFs) for a couple of reasons.
First, while there is a theoretical difference in risk between bonds and preferred stock, the practical risk is not so large as to make the meaningful difference in yield worth owning most bonds.
Second, while most bond ETFs are broadly diversified, bond prices are subject to significant risks that include inverse correlation with interest rate movements. This is why my stock advisory newsletter, The Liberty Portfolio, will not likely own bond ETFs.
Remember, we are now in a rising rate environment. As rates go up, bond prices go down. They are also subject to overall economic risks. However, you can buy single-issue investment grade bonds that yield far more than most bonds, and for which these other risks do not exist. A corporate bond is issued with a specific yield. Its price will be much less subject to market interest rate movements because corporate bonds yield so much more.
Only if something happens to that individual issue will prices move and yields move with them.
Still, many investors like bond ETFs. If you’re a fan of these ETFs, I would avoid these three if you are investing for retirement.