Many investors save for a future goal, such as buying a home, funding a wedding, or covering a major life event. If you already know roughly when you will need your money, the key question is how to invest with that date in mind.
What you’ll learn
In this article, you’ll learn:
01.
What a bond is
02.
How fixed-term bond ETFs work
03.
How they differ from traditional bond ETFs
04.
When they may be useful for investors
05.
How they can support goal-based investing
What is a bond?
A bond is a loan made by an investor to a company or government.
When you invest in a bond, you typically receive regular interest payments (known as coupons) as well as the repayment of your initial investment at a fixed maturity date.
What are fixed-term bond ETFs?
Fixed-term bond ETFs are exchange-traded funds that invest in bonds designed to mature in a specific year, providing a defined investment horizon.
This means:
- The bonds within the ETF have similar maturity dates
- The ETF itself has a planned end date
- At maturity, capital is returned, subject to market conditions
Fixed-term bond ETFs vs. traditional bond ETFs
Traditional bond ETFs and fixed-term bond ETFs differ in how they manage maturities.
Traditional bond ETFs:
- Continuously replace maturing bonds with new ones
- Do not have a fixed end date
- Provide ongoing exposure to bond markets
Fixed-term bond ETFs:
- Have a defined end date
- Invest in bonds that mature in the same year
- Aim to return capital at maturity
Because of this structure, fixed-term bond ETFs can feel similar to fixed-term savings accounts, while still offering access to capital markets. This can make it easier to match investments to a specific time horizon.
In short: traditional bond ETFs are ongoing, while fixed-term bond ETFs are time-defined.
Example: Investing towards a specific date or goal
If you plan to buy a home in 2031, you might choose a fixed-term bond ETF maturing around 2030. Instead of holding cash in a low‑interest account, this approach allows you to invest with a clear goal and timeframe in mind, helping align your money with when you expect to need it.
Similar to fixed-term deposits - but different
Fixed-term bond ETFs share some similarities with fixed-term deposit accounts, including:
- A defined investment horizon
- Support for forward planning
However, there are important differences:
- They invest in capital market instruments
- Their value can fluctuate over time
- Returns depend on market conditions
In short: Fixed-term bond ETFs offer a structured investment approach similar to deposits, but with exposure to capital markets.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed.
When can fixed-term bond ETFs be useful?
They may be considered by investors who:
- Are saving towards a specific date
- Have planned future spending needs
- Are looking for alternatives to traditional savings products
- Prefer combining income with a defined investment horizon
Frequently asked questions
Conclusion
Investing with a target date
Fixed-term bond ETFs can offer a structured way to invest with a specific goal in mind. By combining diversification with a defined maturity, they can help investors align their investments with future financial needs.
01.
Fixed-term bond ETFs invest in bonds with a defined maturity year
02.
They combine diversification with a clear time horizon
03.
They can support goal-based investing
04.
They are subject to market risk and are not guaranteed
Ready to start investing?
Getting started with investing doesn t have to be complicated. With a clear plan and a long term perspective, even small steps can make a difference over time. Many investors begin with a few simple steps:
Define your goals
Consider what you want to achieve and how investing fits into your plans.
Open an investment account
You'll need an investing account with an online investment platform, bank or provider.
Choose a suitable investment approach
A diversified portfolio may include equities, bonds and ETFs.
Start investing regularly
Investing gradually over time can help manage market fluctuations.