I recommend using a ladder of Invesco BulletShares ETFs as a stable investment that pays better than the measly yields from money market funds, explains Tim Plaehn, income expert and editor of The Dividend Hunter.
BulletShares are bond ETFs that have fixed maturities. There are a series of funds, each with a specific maturity date. With these funds, you can set up an old-fashioned bond ladder, which allows an attractive current yield and the potential to benefit when interest rates go higher.
I have been recommending a three-year ladder, using these Invesco funds:
Invesco BulletShares 2022 Corporate Bond ETF (BSCM)
Invesco BulletShares 2022 Corporate Bond ETF (BSCN)
Invesco BulletShares 2024 Corporate Bond ETF (BSCO)
After reviewing the current yields on the investment-grade BulletShares, I recommend adding Invesco BulletShares 2025 Corporate Bond ETF (BSCP) to lengthen the investments to a four-year bond ladder.
With equal weight investments, the four-year ladder has an average yield to maturity of 1.14%. If you have the dividends on automatic reinvest, your yield will be about 0.2% greater.
Here are a couple of points to keep in mind:
If you hold your shares until maturity (or within a few months of maturity), you will earn the stated yield to maturity in effect when you purchased the shares.
On some funds, the distribution yield (dividends paid divided by the share price) is higher than the yield to maturity. This factor means you will see a slight erosion of the share price as the dividends get paid, but that is nothing to be concerned with. You will earn the yield to maturity.
Bond prices move opposite the direction of changes in interest rates. This means that if interest rates increase, BulletShares prices could go down; however, because these funds hold the bonds until they mature, you will earn the yield to maturity in effect when you purchased shares.
Despite the low yields on these funds, reinvesting the dividends significantly improves your final returns. Be aware that the return calculated in your brokerage account is likely not accurate.
I think of my BulletShares holdings as the dry powder I will put to work the next time the stock market corrects or suffers through a bear market. I buy a few shares of each of the four funds every month. You’ll want to decide the right amount for your own personal circumstances.
