Protect your retirement portfolio with bond funds.

People who are getting ready for retirement, or already retired, often boost their fixed-income asset allocation to protect the money they’ve earned. When considering bond funds for retirement, think about risk appetite and income needs, but also income-tax bracket, says Christopher Battifarano, chief investment officer at Florida-based FineMark National Bank & Trust. “If someone is moving into retirement and their tax bracket falls, they may want to explore going into corporate (bonds) because you could have some incremental yield,” he says. “If you can earn more in coupon income even after paying the tax, you’re in a better position.” Here are seven best bond exchange-traded funds for retirement.

Next:iShares Core US Aggregate Bond ETF (ticker: AGG) Credit

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iShares Core US Aggregate Bond ETF (ticker: AGG)

The AGG is a broadly diversified ETF that’s tied to the Bloomberg Barclays U.S. Aggregate Bond Index, considered the benchmark bond index and a core holding for a fixed-income portfolio. The ETF tracks an index of different types of U.S. investment-grade bonds, including U.S. Treasurys, agencies, commercial mortgage-backed securities and other debt, says Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA. It’s one of the cheapest fixed-income funds around at 0.05% – $5 for every $10,000 invested – and one of the biggest with $60 billion in assets under management. Its 12-month yield is 2.73%.

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Protect your retirement portfolio with bond funds.

People who are getting ready for retirement, or already retired, often boost their fixed-income asset allocation to protect the money they’ve earned. When considering bond funds for retirement, think about risk appetite and income needs, but also income-tax bracket, says Christopher Battifarano, chief investment officer at Florida-based FineMark National Bank & Trust. “If someone is moving into retirement and their tax bracket falls, they may want to explore going into corporate (bonds) because you could have some incremental yield,” he says. “If you can earn more in coupon income even after paying the tax, you’re in a better position.” Here are seven best bond exchange-traded funds for retirement.

iShares Core US Aggregate Bond ETF (ticker: AGG)

The AGG is a broadly diversified ETF that’s tied to the Bloomberg Barclays U.S. Aggregate Bond Index, considered the benchmark bond index and a core holding for a fixed-income portfolio. The ETF tracks an index of different types of U.S. investment-grade bonds, including U.S. Treasurys, agencies, commercial mortgage-backed securities and other debt, says Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA. It’s one of the cheapest fixed-income funds around at 0.05% – $5 for every $10,000 invested – and one of the biggest with $60 billion in assets under management. Its 12-month yield is 2.73%.

iShares 3-7 Year Treasury Bond ETF (IEI)

For investors who want safety, a little more control over their time horizon and to target a certain point on the yield curve, one example is IEI, Rosenbluth says. The ETF tracks a market-weighted index of U.S. Treasury debt with remaining maturity between three and seven years. By going out slightly further on the yield curve, IEI has a little higher yield, but holders also need to be aware the longer duration can increase interest rate risk. It has a 12-month yield of 2.07%.

Invesco BulletShares 2020 Corporate Bond ETF (BSCK)

Daniel Milan, managing partner at Cornerstone Financial Services in Southfield, Michigan, says he likes defined-maturity ETFs such as Invesco’s BulletShares, which are market-weighted bond indices. Rather than offering constant exposure to a segment of the bond market, BulletShares ETFs have a specific maturity. The largest BulletShares ETF by assets is BSCK, which matures on Dec. 31, 2020. Using an ETF like BSCK achieves two outcomes Milan wants: minimizing credit risk because the fund is diversified and reducing default risk because the ETF matures at a certain date. In addition to corporate bonds, there are BullsetShares for emerging markets and high-yield bonds.

iShares iBonds Dec 2025 Term Muni Bond ETF (IBMN)

Similar to Invesco BulletShares’ defined-maturity ETF, iShares has a similar offering. But as a muni-bond ETF, it also has corporate bonds. IBMN tracts a market-weighted index of investment-grade, tax-free municipal bonds, which will mature between January and December 2025. The defined-maturity ETFs allow Milan to use the concept of bond laddering, but in an ETF, which provides greater diversification than laddering individual bonds. “When the ETF matures, you get your net asset value back and you can reinvest it,” he says. Depending on a client’s risk he will blend a mix of munis, investment-grade corporates or high-yield and emerging market debt to reach the client’s goal.

PIMCO Active Bond ETF (BOND)

Marc Pfeffer, chief investment strategist at CLS Investments, says for an investor seeking a core fixed-income holding, he chooses BOND for its strong yield and diversity. The fund seeks to maintain a constant dividend level. It’s an actively managed ETF, so its expense ratio is higher than a benchmark ETF like AGG, but the distribution yield of 3.48% more than makes up for the price of 0.76%. “It's going to invest in sort of all types of securities you can go anywhere type of ETF in the fixed-income space,” Pfeffer says.

SPDR Bloomberg Barclays High Yield Bond ETF (JNK)

Investors who might be nearing retirement, or just in retirement and are willing to take a little extra credit risk, should consider a fund like JNK, Rosenbluth says. It tracks a market-weight index of highly liquid, high-yield U.S. dollar-denominated corporate bonds. The duration of the fund is 3.85 years, so it stays on the relatively shorter side of maturity. The fund has a robust assets under management of $9.92 billion, making it the largest high-yield ETF available. It has a 12-month yield of 5.57%.

SPDR Blackstone/GSO Senior Loan ETF (SRLN)

For investors willing to take on additional risk for higher yield, Pfeffer chooses SRLN, an actively managed bond fund that has exposure to domestic and foreign noninvestment-grade, floating-rate senior loans. The fund has a very short duration as it resets every three months. Pfeffer says SRLN holds higher quality debt than a straight high-yield ETF. With the economy expected to remain good, “I think you’re getting compensated for the additional credit risk versus buying a Treasury bond,” he says. SRLN’s 12-month yield is 5.11% and the expense ratio is 0.7%.

Best bond ETFs for retirement savers.

iShares Core US Aggregate Bond ETF (AGG)iShares 3-7 Year Treasury Bond ETF (IEI)Invesco BulletShares 2020 Corporate Bond ETF (BSCK)iShares iBonds Dec 2025 Term Muni Bond ETF (IBMN)PIMCO Active Bond ETF (BOND)SPDR Bloomberg Barclays High Yield Bond ETF (JNK)SPDR Blackstone/GSO Senior Loan ETF (SRLN)1 of 10

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