Insights & Education

LifeX ETFs are a suite of Treasury bond funds designed to personalize bond investing with an emphasis on tax-efficient monthly cash flow.¹  In addition to interest income, the ETFs intend to distribute principal each month, resulting in higher cash flow than would be possible from interest alone. Each fund’s distributions are designed to continue until the end of its specified end year and to return all principal along with interest over that horizon.

LifeX ETFs are designed to provide reliable monthly distributions through the specified end year.²  

To support their distributions, the ETFs invest in U.S. government bonds and intend to distribute the resulting interest income as well as principal over time.

LifeX ETFs own bonds issued by the U.S. government.

• LifeX Term Income ETFs and LifeX Longevity Income ETFs own U.S. Treasury bonds.
• LifeX Inflation-Protected Longevity Income ETFs own inflation-protected Treasury bonds (i.e., Treasury Inflation-Protected Securities, commonly referred to as “TIPS”).

Longevity Income ETFs are designed to generate front-loaded payouts for longer planning horizons (end years 2048-2065).³

Inflation-Protected Longevity Income ETFs offer the same front-loaded payout profile and end years as the Longevity Income ETFs, and the distributions adjust each year based on realized inflation.  

Term Income ETFs are designed to generate level payouts for shorter time horizons (end years 2035, 2040, and 2045).

LifeX offers planning horizons as short as 10 years and as far into the future as 40 years. Please find below the planning horizons available by product type:

LifeX ETFs are designed to give investors the reliable cash flow and locked-in interest rates of a Treasury bond ladder in a single ticker with an added feature designed to increase stability further: LifeX ETFs are designed to return principal alongside earned interest every month, delivering more consistent cash flow than if they delivered principal back only when bonds mature, which can lead to “lumpy” cash flow.

You can buy LifeX on most major brokerage platforms. Within the trading section of your brokerage platform, you can type in the LifeX ticker you’d like to purchase. Alternatively, we’ve included direct links to major platforms on each LifeX ETF page. For example, to buy LDDR, click on the “Ready to Invest” button at the top of the LDDR landing page.

Once you buy LifeX, monthly payouts will be deposited directly into the account where you own your LifeX investment.

LifeX ETFs are designed to pay stable per-share distributions that do not fluctuate year to year based on current interest rates, so once you’ve purchased a LifeX ETF, changes in interest rates should not impact your monthly distributions.  

If interest rates increase, investors can elect to reinvest distributions at higher, prevailing distribution rates. If interest rates decrease, investors locked in their distribution rate at purchase, which can be particularly appealing to do if they expect interest rates to fall in the future.

Though changes in interest rates will not impact the monthly distribution amounts, those changes will impact the price per share of the ETF: a fall in interest rates would generally lead to a higher price per share, which would enable you to sell your existing shares for a higher value, while a rise in interest rates would generally lead to a lower price per share and a lower market value.⁴

New investors will purchase shares at the latest market value.  As a result, an annual $10 per-share distribution will represent a higher distribution rate when the market value is lower and a lower distribution rate when the market value is higher.  For example, a $10 distribution divided by a $200 market value represents a 5.00% distribution rate, while a $10 distribution divided by a $150 market value represents a 6.67% distribution rate.⁵

In addition to the tax efficiency of the ETF structure, LifeX ETFs are designed to produce distributions in a tax-advantaged manner.¹  As a result, LifeX’s distributions are expected to result in a lower tax burden than if they were treated as ordinary income for tax purposes.  

Each of the ETF’s distributions is expected to consist of a mix of:

1. Interest income, which is expected to be taxable federally but tax-exempt at the state and local level.  This income will be included in standard Form 1099 reporting from your custodian.
2. Return of capital, which is not subject to tax. Your custodian will process return of capital as an adjustment to your cost basis on an annual basis.

A bond ladder is a series of individual bonds of varying maturities. As the bonds mature, the principal can be used for spending needs or reinvested in new bonds that mature in subsequent years. Investors may use bond ladders to generate predictable cash flow that is not impacted by interest rate moves once the ladder is purchased.

The way you access fixed income will depend on your unique situation and needs. You may want to speak to a financial advisor for advice on what makes sense for you.

Individual bonds can offer predictable returns if held to maturity, but buying them may require a larger minimum investment amount. For example, the minimum purchase amount for U.S. government bonds is $100 (see Treasury Direct for details).

Generally, bond ETFs and other bond funds may allow you to access a portfolio of multiple bonds via one investment. They also typically have smaller investment minimums than individual bonds, because you can invest in the fund one share at a time, and share prices are frequently less than $100. However, in comparison to owning individual bonds, bond funds may provide less predictable income because they may own different bonds over time as they rebalance their portfolio. In addition, since bond funds typically don’t have an end date, you may need to sell your shares to access you principal.

LifeX ETFs are a specific kind of bond ETF; specifically, they are bond ladder ETFs, designed to provide investors with tax-efficient monthly cash flow.¹  In addition to interest income, the ETFs intend to distribute principal each month, resulting in higher cash flow than would be possible from interest alone.

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A bond is a type of fixed income investment that may be used to generate income. Typically, a bond issuer sells bonds to investors. In return, the issuer delivers to investors interest payments (or “coupons”) until the bond matures and then delivers the bond’s face value at maturity.

A bond’s coupon rate is the annual interest its issuer plans to pay the bond’s holders, assuming the issuer does not default.

A bond’s face value is the amount of money a bond issuer promises to repay bondholders at maturity, and it determines the dollar value of coupon payments. It is typically repaid in full as a lump sum at the bond’s maturity date, assuming the issuer does not default.

A bond’s maturity date is the stated end of the bond’s term. For example, if you invest in a Treasury note with a hypothetical maturity date of 12/31/2035, you can expect to receive regular interest payments (based on the coupon rate) between now and December 2035. In addition, you can expect to receive your principal back on the maturity date.

Typically, there is an inverse relationship between interest rates—i.e., the cost of borrowing money, typically benchmarked as the rates on government bonds—and bond prices. Generally, this means that when interest rates rise, bond prices fall.

The intuition behind this is that a bond’s price reflects the value of the income it will deliver via its interest payments. If interest rates start to fall, then bonds that offer higher interest rates will become more valuable, and investors who own those valuable bonds can charge a premium to sell them.  

Bonds are debt instruments offering fixed interest payments backed by their issuer, which may be a government or corporate entity, for example. In contrast, stocks represent ownership in a company with returns tied to market performance and dividends.  

Bonds typically have lower volatility than stocks on average and are designed to generate predictable income. In comparison, stocks may offer higher growth potential that comes with greater volatility and thus more risk.

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Bonds may provide a portfolio stability, income, and risk mitigation because they are designed to generate predictable income as long as the issuer does not default.  

Some bonds may be less volatile than stocks and can help with capital preservation, particularly in uncertain markets. As a result, bonds may be a preferred option for retirees and conservative investors seeking a counterbalance to the volatility and uncertainty associated with their higher-risk assets.  

Tools like bond ladders and diversified fixed income ETFs can help align your bond allocation with your financial goals and time horizon.

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One important way to determine a bond’s safety is to check the creditworthiness of its issuer. The issuer is the entity responsible for paying coupons to investors. In the U.S., credit ratings are determined by third party companies like S&P or Moody’s.

For example, the U.S. government has earned strong credit ratings from S&P and Moody’s. The government earns this rating because S&P and Moody’s have determined through due diligence that it is capable of providing predictable income and principal repayment. As a result, U.S. Treasury bonds and high-grade municipal bonds are considered relatively “safe.”

In contrast, “high yield” corporate bonds are considered riskier, because they are issued by companies with lower credit ratings. These bonds offer higher yields in exchange for more uncertainty around the company’s ability to meet its payments.

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Some of the risks associated with investing in bonds are:

• Credit risk (default by the issuer, especially in high yield bond ETFs)
• Interest rate risk (value loss when rates rise)
• Inflation risk (reduced real value of fixed interest payments)

Diversification across government, municipal, and corporate bonds can help mitigate these risks.

One way to segment the large universe of bonds is by issuer type. Different issuers may offer bonds that are suited to different investment goals. There are 3 primary issuer types in the U.S.:

While this table offers a few examples of bond types, it is not an exhaustive list. Some investors may consider owning a mix of bond types to diversify the risk and return profiles of what they own. For example, bonds can differ based on many variables including payment schedule (e.g., zero-coupon bonds) or security type (e.g., convertible bonds).  

Some investors may also consider owning bonds in different formats based on their needs. For example, an investor who owns Treasury bonds could own them in a bond ladder, a bond fund, or they may buy the bonds directly from the government.

You can buy U.S. Treasury bonds through TreasuryDirect.gov or a brokerage account. They are issued in auctions and available in different maturities, offering fixed interest and government backing.  

You can also access Treasury bonds by buying ETFs that own them. For example, LifeX owns Treasury bonds and can be purchased directly in your brokerage account.

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