What TLT actually is

TLT holds US Treasury bonds with maturities of 20 years or more. They are backed by the US government, so the risk of default is very low, but because they are so long-dated they react strongly to changes in interest rates.

What is inside

Only long-term US Treasuries. When interest rates fall, long bond prices rise a lot, and when rates rise, they fall a lot. That makes TLT a tool for betting on interest rates or hedging a stock portfolio, as much as an income fund.

Distributions

TLT pays monthly interest, and the amount varies. Interest on Treasuries is taxed federally but not by state governments. The share price, not the income, is the main source of change in returns.

What to keep in mind

  • Interest-rate risk is large. A rise in rates can cause deep losses.
  • Inflation risk. Long fixed payments lose value.
  • Not a growth asset. Over long periods it can deliver modest returns.

Quick take

TLT is a very safe issuer with very volatile prices. Use it deliberately, with the rate risk in mind.