Why You Should Use TLT Stock To Fund Your Business
When you’re funding your business with investments, you want to make sure that your investments aren’t all tied up in one place. TLT stock can help you diversify your holdings. You can make profits with TLT if you time your entry right, all while hedging against stock market risk.
What Is TLT Stock?
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If you’ve heard the phrase “TLT” while looking into potential investment vehicles, those letters are referring to the Nasdaq symbol for the iShares 20+ Year Treasury ETF. TLT is ranked as one of the best government long bonds investors can hold.
As with mutual funds, ETFs (or exchange-traded funds) track a particular index. TLT tracks an underlying index, the ICE U.S. Treasury 20+ Year Bond Index, which measures the performance of the United States Treasury’s public obligations. These obligations, in the case of the TLT, have a remaining maturity of 20 or more years. Generally, this fund invests around 90% of its assets in that underlying index’s bonds and 95% in U.S. government bonds.
So, what does that mean for investors? Bond ETFs like the TLT trade daily on the stock market. If you buy a share of TLT, you’re buying a share of each of the assets it holds. You’ll get dividends and interest, just like any director investor would.
What Affects TLT Stock Prices?
While TLT trades a lot like regular stock on the stock market, different factors impact prices. That makes TLT stock a good hedge when the stock market is in a downturn, so you can keep making money to fund your business. Typical investors will focus more on risky assets when stock prices rise but flock to bond exchange-traded funds (such as TLT) when the stock market crashes.
Factors that impact trade bond ETFs like TLT include:
- Supply and demand (as is the case with ETFs that track stocks).
- Interest rate fluctuations.
- Macroeconomic variables like credit rankings and inflation.
- The Federal Reserve or Federal Open Market Committee (FOMC), which can drive prices of bonds higher or lower in the United States.
When To Invest in the TLT
As a bond ETF, TLT stock gives you exposure to bonds without tying up your capital for years on end. If you’re wondering when to trade TLT stock, interest rates offer a useful guideline. If you think interest rates will rise in the future, it’s generally best to stay away from long-term bonds like the TLT as they could lock in a lower interest rate. However, if you think interest rates are going to fall, it’s a good time to invest in the TLT.
How TLT Stock Provides a Hedge for Stock Market Risk
Owning long-duration treasury bonds is a popular strategy for hedging stock market risk. The TLT ETF owns a concentrated basket of treasuries, providing one vehicle that’s very sensitive to interest rate changes. TLT doesn’t get you a perfect inverse relationship to the stock market. However, you’ll find a high historical correlation of falling stocks coinciding with investors rushing to the safety of treasury bonds.
If you know when to get in on the TLT, you can generate profit while hedging against stock market risk.