Bonds That Won’t Bail on You: 3 Rock-Solid Picks for Steady Income


  • Though no form of investment is without risk, bonds are the lowest-risk plays on the spectrum.
  • iShares 20+ Year Treasury Bond ETF (TLT): Through savings bonds, investors can store excess cash for the long term.
  • iShares National Muni Bond ETF (MUB): Municipal bonds are a perfect way to safely invest in your community.
  • iShares Agency Bond ETF (AGZ): Agency bonds are specialized and potentially more lucrative than more standard bond classes.
Safe Bonds - Bonds That Won’t Bail on You: 3 Rock-Solid Picks for Steady Income

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Though I’ll likely be branded a doomsayer, the current stock market trend of monthly record-breaking runs seems unsustainable. The market, while intended for the exchange of currency for potential future gain, is still made of people – people who often make emotional and irrational decisions with their money. Moreover, it seems like nearly every economics and finance-related article published these days mentions the Federal Reserve, and its notoriously missing interest rate cuts. As such, these kinds of trends have started to make safe bonds and their derivative exchange-traded funds (ETFs) look more attractive over time.

I don’t have a crystal ball to tell you when the stock market will crash, but I know, based on historical trends, and the fact that the average American consumer feels more squeezed for cash than ever, yet the richest corporations in the U.S. continue to announce record revenues that somehow, somewhere the money will run out. When it does, some of the happiest investors will be those who sequestered enough cash into safe bonds to remain unfazed.

iShares 20+ Year Treasury Bond ETF (TLT)

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What if I told you there’s a nearly certain way to double your savings over 20 years? Thanks to U.S. Treasury-issued savings bonds, it’s genuinely possible. Currently, one of the easiest ways to gain exposure to these bonds is by buying the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT).

Because this ETF consists of AAA-rated U.S. Treasury bonds, staggered to mature over 20 years, it takes advantage of the characteristics of I and EE class bonds.

The EE bond class, with a guaranteed doubling in 20 years, can lead to generous boosts in long-term savings due to its fixed 2.7% interest. Each year, the Treasury limits individuals to purchasing only $10,000 worth of EE bonds each year, which limits these bonds’ ability to compound over time. That being said, EE bonds can be cashed in one year after purchase, but if cashed in before the five-year mark, three months of interest are deducted as a penalty.

The second component of the ETF comes from the I Bonds class. These work very similarly to EE bonds but also protect long-term cash savings from inflation by offering an adjusted return interest rate based on inflation statistics. The minimum rate remains fixed at 1.30% with additional adjustments occurring every six months. With persistent inflation above 2%, the current I bonds interest rate is 4.38%, which would give a nice starting bump to those who invest in these safe bonds now.

iShares National Muni Bond ETF (MUB)

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Municipal bonds are a more specialized form of bond investing and can provide security to a subset of investors who want tax-free returns on their cash savings. To gain simple exposure to a wide aggregate of municipal bonds, investors can purchase the iShares National Muni Bond ETF (NYSEARCA:MUB). This ETF combines the municipal bonds of the largest, most affluent state governments like California, New York, and Illinois to maximize its return value.

Investors should keep in mind, however, that there is a slightly higher inherent risk with municipal bonds. This is a result of their issuance from state and local governments to provide funding for infrastructure and public services. Thus, municipal bonds don’t have the tax backing of the federal government, but most state governments are exceptional at tax collection as well.

The most attractive aspect of a municipal bond ETF, however, is that its interest accrued is often tax-free. This incentivizes high-net-worth individuals to invest in their local communities upfront while receiving compensation for their investment in the long term. However, that does not mean that the average person cannot store his or her cash in this type of debt security. Rather, in the case of municipal bonds, purchasing them as safe bonds for cash protection can suit an investor’s needs more broadly than a traditional savings bond.

iShares Agency Bond ETF (AGZ)

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Another federally backed type of bond, agency bonds, originate in federal agencies like the Federal Housing Administration or Small Business Administration as a means of fundraising. Corporations sponsored by the U.S. government, also known as government-sponsored entities, can issue agency bonds as well. Like the other bond structures mentioned in this article, investors can purchase an attractive bundle of agency bonds through the iShares Agency Bond ETF (NYSEARCA:AGZ).

Some investors might choose agency bond ETFs for their maturity yield. To maintain a competitive edge, all agency bonds come at a varying basis point spread higher than the regular savings bond rate. This helps make them less susceptible to inflation over time.

Moreover, because of persistently high interest rates, agency bonds are cheaper now than they have been at any point in the last five years. Should rate cuts occur, investors who buy now are likely to earn both on the value of their bonds and the interest paid by the issuer through their ETF positions.

On the date of publication, Viktor Zarev did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Viktor Zarev is a scientist, researcher, and writer specializing in explaining the complex world of technology stocks through dedication to accuracy and understanding.

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