How to Invest in iShares 20+ Year Treasury Bond ETF

The iShares 20+ Year Treasury Bond ETF (TLT 0.68%) is one of many ways to invest in the massive U.S. Treasury market. The exchange-traded fund (ETF) provides investors targeted access to a specific segment of the fixed-income market: U.S. Treasuries that mature in over 20 years. It allows investors to customize their Treasury portfolio.

This guide will teach you everything you need to know about the iShares 20+ Year Treasury Bond ETF. It will also show you how to invest in ETFs for beginners.

What is it?

What is the iShares 20+ Year Treasury Bond ETF?

The iShares 20+ Year Treasury Bond ETF is exactly what its name suggests. The ETF provides targeted access to U.S. Treasury bonds that mature in more than 20 years. These low-risk bonds backed by the U.S. government will supply a steady, predictable income for more than two decades.

The BlackRock (BLK 1.33%)-managed ETF enables investors to target a specific segment of the Treasury market through a single investment vehicle. Instead of opening an account with the U.S. government (TreasuryDirect.gov) and buying these bonds directly, investors can buy this single fund to gain exposure to long-term Treasuries.

The ETF aims to track the results of an index (ICE U.S. Treasury 20+ Years Bond Index) comprising U.S. Treasury bonds with remaining maturities of more than 20 years. It is an easy way for anyone to invest in long-term U.S. Treasuries through their brokerage account. Its focus on long-term Treasuries can make it a good long-term ETF investment.

How to buy

How to buy iShares 20+ Year Treasury Bond ETF

Anyone can buy shares of iShares 20+ Year Treasury Bond ETF. It trades on a major stock exchange, allowing you to purchase the ETF in your brokerage account. Here's a four-step guide to help you add the bond ETF to your portfolio.

Step 1: Open a brokerage account

You'll have to open and fund a brokerage account before buying shares of any ETF. If you need to open one, here are some of the best-rated brokers and trading platforms. Take your time researching the brokers to find the best one for you.

Step 2: Figure out your budget

Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to figure out how to allocate that money. The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years.

So, if you have $10,000 to invest, you'd want to invest about $400 across 25 different holdings. However, ETFs like the iShares 20+ Year Treasury Bond ETF aren't the same as owning shares of a publicly traded company. It holds long-term Treasury bonds backed by the U.S. government. Because of its focus on lower-risk government bonds, investors could allocate a larger portion of their portfolio to this ETF.

Step 3: Do your research

You need to thoroughly research any potential investment before committing your money. When analyzing an ETF, you should review its strategy, holdings, expense ratio, and historical performance and compare it to the best ETFs to buy.

Step 4: Place an order

Once you've opened and funded a brokerage account, set your investing budget, and researched the investment, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill out all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker (TLT for iShares 20+ Year Treasury Bond ETF).
• Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order because it guarantees you buy shares immediately at market price.

Once you complete the order page, click to submit your trade and add the bond ETF to your portfolio.

Holdings

Holdings of the iShares 20+ Year Treasury Bond ETF

The iShares 20+ Year Treasury Bond ETF is one of the largest bond ETFs by assets under management (AUM). Its AUM in mid-2024 was more than $45 billion. Over 99% of its assets were U.S. Treasury bonds (cash made up less than 1% of its net assets).

In mid-2024, the fund held 42 Treasury bonds with various maturity dates issued by the U.S. government. About 2% of its net assets were bonds that will mature in 15 to 20 years, while more than 97% mature in more than 20 years. The fund's weighted average maturity was 25.5 years in mid-2024.

Should I invest?

Should I invest in the iShares 20+ Year Treasury Bond ETF?

Choosing an investment is a very personal decision. You need to make investments that align with your risk tolerance, return objectives, and personal values. Here are some reasons you might want to invest in the iShares 20+ Year Treasury Bond ETF:

• You're seeking a low-risk, fixed-income investment.
• You want to invest in a specific sector ETF that holds long-term U.S. government bonds.
• You don't want to have to manage a portfolio of individual bonds.
• You want a very liquid investment.
• You want a monthly income stream.

On the other hand, here are some reasons you might not want to invest in this bond ETF:

• You're growing increasingly concerned about the long-term sustainability of the U.S. federal budget deficit.
• You'd prefer to buy Treasury bonds directly from the U.S. government.
• You're seeking a bond ETF or mutual fund with a broader focus on the U.S. Treasury market or the overall global bond market.
• You're seeking a higher return than the ETF can provide.
• You want a very low-cost bond ETF.

Dividends

Does the iShares 20+ Year Treasury Bond ETF pay a dividend?

The iShares 20+ Year Treasury Bond ETF pays a dividend. The ETF makes monthly distribution payments supported by interest payments made by the U.S. government. While Treasury bonds make fixed payments until they mature, this fund cycles out bonds with nearer-term maturities and replaces those with maturities of more than 20 years.

Dividend payments made by the ETF tend to rise and fall with interest rates. Declining rates during the COVID-19 pandemic drove down rates on newly issued long-term Treasury bonds (and dividend payments by this ETF); rising rates in more recent years have driven them up:

As of mid-2024, the ETF had paid an almost 4% dividend yield over the trailing 12 months. However, the ETF has been adding higher-yielding bonds as interest rates rise. As a result, its average yield to maturity was more than 4.7% in mid-2024. The high yield could make it a compelling dividend ETF for income-seeking investors.

Expense ratio

What is the iShares 20+ Year Treasury Bond ETF's expense ratio?

The iShares 20+ Year Treasury Bond ETF has a 0.15% expense ratio, a fairly reasonable expense ratio compared to other bond ETFs. However, it's not as low as the top bond ETFs.

For example, the largest bond funds by AUM, IShares Core U.S. Aggregate Bond ETF (AGG 0.32%) and Vanguard Total Bond Market ETF (NYSEMKT:BND), each have a 0.03% expense ratio. A $10,000 investment in those top bond funds would cost about $3 each year.

On the other hand, a $10,000 investment in the iShares 20+ Year Treasury Bond ETF would cost about $15 per year. The higher cost means investors would receive less of the interest income that the bond fund generates each year.

Historical record

Historical performance of the iShares 20+ Year Treasury Bond ETF

Interest rates have a significant impact on bond values and yields. Generally, lower interest rates since the 2007-2009 financial crisis have enabled the U.S. government to borrow money cheaply by selling long-term Treasury bonds.

Meanwhile, interest rates in more recent years that have been increased to combat inflation have weighed on the values of long-term bonds, pushing up their yields. These dynamics have had a significant impact on the historical performance of the iShares 20+ Year Treasury Bond ETF:

The fund has largely matched the performance of its benchmark, delivering only a slight underperformance due to its expense ratio. Although the ETF has delivered lackluster performance over the past decade, higher interest rates in recent years have enabled the ETF to invest in higher-yielding bonds.

Its yield to maturity in mid-2024 was more than 4.7%. As a result, if rates stabilize, the ETF could deliver a better performance in the future.

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The bottom line on iShares 20+ Year Treasury Bond ETF

Government bonds are an integral part of many investors' portfolios. They reduce risk, increase diversification, and provide a stable fixed-income stream. The iShares 20+ Year Treasury Bond ETF allows you to make a targeted investment in long-term Treasuries. It could be a good ETF for those seeking targeted exposure to that segment of the global bond market.

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