I'm trying to understand how investing in bonds works.
Let's say I buy an actual, physical 3yr $100 bond with an annual 5% coupon. So I know I'll get a cash flow of 5 at EOY1, 5 at EOY 2, and 105 at EOY3 assuming no default.
Now let's say I buy an bond ETF. It's made up of similar bonds, but the ETF value fluctuates, so if I closed the position at EOY 3, I could have less money than I started with.
My question is, what's the point of getting the bond ETF, whose value fluctuates, instead of the actual bond whose cash flows are more certain?
I have a hunch that the two are basically equivalent somehow, but I haven't quite connected the dots. Thanks in advance for your help!
Submitted November 03, 2017 at 11:03PM by KingBiscuitz http://ift.tt/2zchxyP
