The Best Bond Index Funds to Buy From Vanguard and Fidelity
If you are looking for low-cost investing options, both Vanguard Investments and Fidelity are good options to consider. Both firms are well known and offer low fees. They allow you to invest in many of the best bond index funds covering all the major bond types.
Learn more about your options for investing with Vanguard and Fidelity.
Total Bond Market Funds
A total bond market fund can form the core of a fixed-income portfolio. These funds track the progress of the entire bond market. This allows you to have a broad investment with a single fund.
If you are looking for just one bond fund to invest in, total bond market funds are a wise choice. Let's unpack two good choices to consider.
Vanguard Total Bond Market Index Admiral Shares (VBTLX)
VBTLX is the biggest bond fund in the world. When you own shares, you have insight to the entire sphere of the U.S. bond market. This includes more than 10,000 bonds.
The fund invests about 40% in corporate bonds and 60% in U.S. government bonds of all maturities. These include short-, intermediate-, and long-term issues.
Fidelity Total Bond (FTBFX)
FTBFX is sometimes called a "bond multivitamin." It is a core holding that offers exposure to a broad range of fixed-income assets.
Over time, FTBFX has included government and investment-grade corporate bonds, as well as high-yield investments that have a lot of promise. The fund normally invests at least 80% of assets in debt securities of all types and repurchase agreements for those securities.
Long-term bond funds invest in bonds with maturity dates of more than 10 years. They tend to perform best when interest rates are falling.
However, if you want to add a long-term bond fund to your portfolio, index funds are usually a safe choice. Vanguard and Fidelity again have some of the top funds in this category
Vanguard Long-Term Bond Index Admiral Shares (VBLAX)
This fund provides broad exposure to the long-term bond market. It has a diversified approach to bond investing and is low-cost.
VBLAX provides broad exposure to U.S. investment-grade bonds with maturities of more than 10 years. It invests about 60% of assets in corporate bonds and 40% in U.S. government bonds.
Fidelity Long-Term Treasury Bond Index (FNBGX)
This fund normally invests at least 80% of its assets in the securities that are included in the Bloomberg Barclays U.S. Long Treasury Index. FNBGX typically maintains a dollar-weighted average maturity of 10 years or more.
Short-term bonds are good choices if you are looking for low market risk with an investment period of under three years. Short-term bonds also have lower interest rate risk. Learn two solid choices for short-term bonds.
Since bond prices typically move in the opposite direction of interest rates, they are a smart choice when interest rates are rising.
Vanguard Short-Term Bond Index Admiral Shares (VBIRX)
The fund offers a low-cost, diversified approach to bond investing. It gives you broad exposure to U.S. investment-grade bonds with maturities between one and five years.
VBIRX invests about 30% of its assets in corporate bonds and 70% in U.S. government bonds within that maturity range.
Fidelity Short-Term Treasury Bond Index (FUMBX)
This fund typically invests at least 80% of its assets in securities included in the Bloomberg Barclays U.S. 1–5 Year Treasury Bond Index. It normally maintains a dollar-weighted average maturity of three years or less.
An index fund that invests in foreign bonds lets you diversify your bond fund holdings beyond the U.S. market. These funds are subject to interest rate risk.
Increases in interest rates could cause the bond prices in the portfolio to decrease, which would drop the fund's net asset value.
As they invest in non-U.S. bonds, these funds are also subject to risks from the country or region where they are located. They use currency-hedging strategies to protect against uncertainty in future exchange rates, so any returns reflect the performance of international bonds.
If you are looking for international bond funds, consider this one from Vanguard.
Vanguard Total International Bond Index Admiral Shares (VTABX)
This fund seeks to provide broad exposure to non-U.S. investment-grade bonds. It tracks an index that includes international government, agency, and corporate securities.
The bonds are mostly from developed countries, but some emerging market countries are included.
Alternative Bond Types
There are several niche categories of bonds. A few that are available as index funds, and worth considering, are tax-exempt bonds and Treasury Inflation-Protected Securities (TIPS) funds.
Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX)
This index fund provides broad exposure to U.S. investment-grade municipal bonds. It invests in investment-grade municipal bonds of short-, intermediate-, and long-term issues.
VTEAX has a duration profile of five to 13 years. The fund aims to provide a sustainable income that is exempt from federal personal income taxes. As a result, it is popular with investors in higher tax brackets.
Fidelity Inflation-Protected Bond Index Fund (FIPDX)
This fund normally invests at least 80% of assets in inflation-protected debt securities. These are usually found within the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index (Series-L).
FIPDX holds investments in derivatives. These include swaps and futures contracts, as well as forward-settling securities that adjust the fund's risk exposure.
A Word of Caution Before Buying
Bond index funds are useful diversification tools and can beat actively managed funds in the long run. However, they are passively managed, which means the portfolio managers cannot actively buy and sell the holdings.
When interest rates are rising, some investors may be in a bad position because an index fund manager is forced to hold bonds that are falling in price more than similar funds that are actively managed.
Even professional money managers can't always predict what markets will do. Given that uncertainty, you may find that index funds are your best investment approach.
Frequently Asked Questions (FAQs)
What are bonds?
A bond is a fixed income instrument. When you buy a bond, you're loaning money to a borrower, which is usually a corporation or a government entity like a municipality, state, or the federal government. You're promised a specific rate of interest while you own the bond, and the principal must be repaid by the bond's maturity date. Bonds can be sold after they're issued, so you don't have to keep them until they mature.
What are bond funds?
A bond fund is when funds from many investors are pooled together to invest in a variety of bonds. Bond funds don't have a maturity date, and interest payments are made monthly to the investors. Bond funds typically focus on one type of bond, like corporate or government bonds.
The Balance does not provide tax or investment advice or financial services. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.
Best Total Bond Market Index Funds
Index fund investing benefits from lower fees than buying actively managed mutual funds. Lower costs result in better after-fee returns over the long term. That’s true with fixed income investments as well as equities.
SP Global tracks the relative performance of actively managed funds compared to their respective benchmark across a number of asset classes. Its latest report shows that actively managed funds were more likely to underperform their respective index over one-, three- and five-year periods. Morningstar has reported similar results.
There are at least two important considerations beyond performance that investors should keep in mind. First, the duration of the funds in our list hover around six years. Duration helps us understand how much the value of a fund will rise or fall with interest rates. Generally, for each 1% rise or fall in interest rates, a fund’s value will rise or fall by a percentage equal to its duration.
Assuming a fund with a six-year duration, an increase in rates of 1% will cause the fund’s value to decline by about 6%. A decrease of 1% in the prevailing rates will cause the fund’s value to increase by about 6%. Given the historically low interest rate environment and the recent rise in yields, you need to consider the interest rate risk associated with a total bond index fund.
Second, the Bloomberg Barclays bond index is limited to fixed-rate securities. As a result, the index and the funds that track it do not invest in TIPS, which protect investors from unexpected rises in inflation and interest rates. TIPS are an important part of a well diversified portfolio—for investors wanting exposure to TIPS, they’ll need to consider other bond funds.
Vanguard bond funds
footnote*For the 10-year period ended December 31, 2020, 67 of 82 Vanguard bond funds outperformed their Lipper peer-group averages. Results will vary for other time periods. Only mutual funds and ETFs (exchange-traded funds) with a minimum 10-year history were included in the comparison. Source: Lipper, a Thomson Reuters Company. The competitive performance data shown represent past performance, which is not a guarantee of future results. View fund performance
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.
Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline. Investments in bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.
Vanguard average stock fund expense ratio: 0.09%; industry average stock fund expense ratio: 0.59%. Vanguard average bond fund expense ratio: 0.07%; industry average bond fund expense ratio: 0.55%. Vanguard average money market fund expense ratio: 0.12%; industry average money market fund expense ratio: 0.26%. All averages are asset-weighted. Industry averages exclude Vanguard. Sources: Vanguard and Morningstar, Inc., as of December 31, 2020.
Vanguard provides services to the Vanguard funds and ETFs at cost.
ESG funds are subject to ESG investment risk, which is the chance that the stocks screened by the index sponsor for ESG criteria generally will underperform the stock market as a whole or that the particular stocks selected will, in the aggregate, trail returns of other funds screened for ESG criteria.
7 Best Vanguard Bond Funds to Buy in 2021
When you think about investing, chances are what pops into your mind first is stocks. However, any well-balanced investment portfolio will include a good mix of both stocks and bonds.
While bonds and other fixed-income investments don’t tend to see the significant price growth sometimes seen in stocks, they’re also not subject to as much volatility. So, including bonds in your diversification strategy ultimately helps to lighten the blow when the overall stock market is trading in the red.
Although there are plenty of investment-grade funds to choose from on Wall Street, some of the most popular among individual investors are from Vanguard. After all, Vanguard funds — be they exchange-traded funds (ETFs), mutual funds, or index funds — are known for low-costs, allowing investors to hold onto more of the profits their investment dollars generate for them.
But which are the best Vanguard bond funds?
Best Vanguard Bond Funds to Buy
As with any investment-grade fund, Vanguard bond funds aren’t all created equal. Each fund comes with its own expense ratio, investment strategy, and historic performance. In addition, Morgan Stanley Capital International (MSCI) provides ratings for companies according to their resilience to environmental, social, and governance (ESG) risks; ESG ratings provide a way to measure the sustainability and social impact of the entities the fund invests in.
With Vanguard being such a massive fund manager, offering up a long list of bond funds, how do you go about choosing the best for your investment portfolio?
Here’s a list of the seven best Vanguard funds that provide diversified exposure to bonds:
Pro tip: Have you considered hiring a financial advisor but don’t want to pay the high fees? Enter Vanguard Personal Advisor Services. When you sign up, you’ll work closely with an advisor to create a custom investment plan that can help you meet your financial goals. Learn more about Vanguard Personal Advisor Services.
1. Vanguard Total Bond Market ETF (BND)
The Vanguard Total Bond Market ETF was designed to provide highly diversified exposure to the U.S.-dollar-denominated bond market. However, the fund does not invest in inflation-protected bonds or tax-exempt bonds.
Due to the assets held in the fund, it is known for producing high levels of income compared to other bond funds. Moreover, because the fund invests in bonds, prices tend to rise and fall slowly, offering stability in your investment portfolio during bear markets and sudden downturns.
Not only does the fund come with industry-low costs and industry-leading gains, it comes with a strong ESG score, meaning that an investment in the fund may make an impact in causes you care about.
- Asset Allocation: The vast majority of assets held in the fund are allocated to U.S. government bonds, representing more than 60% of holdings in the investment portfolio. The fund also invests in corporate bonds with credit ratings of BBB, A, AA, or AAA, with nearly half of its corporate bond holdings being rated BBB to maximize returns.
- Expense Ratio: Vanguard has a track record of offering some of the lowest-cost funds on Wall Street. So, it should come as no surprise that BND comes with industry-low expenses of just 0.035%. According to ETF.com, the average bond fund costs 0.35%, meaning this particular fund comes at one-tenth the average cost.
- Dividend Yield: At present, the dividend yield on the fund is 1.93%. Over the past five years, yields have ranged from 1.93% to 2.83%, averaging 2.51%.
- Historic Performance: Compared to other bond ETFs, this fund comes with an above-average return. Over the past year, the fund has lost 0.59% as investors sell out of bonds to join the equities frenzy. However, over the past three and five years, the fund has generated gains of 5.41% and 2.98%, respectively.
- Morningstar Rating: 3 out of 5 stars.
- MSCI ESG Rating: The ESG rating on the fund is 6.28 out of 10 according to ETF.com, suggesting this fund is in line or slightly above its peers in terms of sustainability.
2. Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
As an Admiral Shares fund, the minimum investment requirement in this fund is $3,000. However, with a low expense ratio and industry-leading historic returns, it may be worth making the large initial investment.
The Vanguard Total Bond Market Index Fund Admiral Shares fund seeks to provide diversified exposure to the United States Market by investing in treasury bonds and mortgage-backed securities. The maturities on these investments range from short to intermediate and even long-term commitments.
With the fund being made up of investments across several segments, it was designed to be the core bond holding in your investment portfolio.
As is the case with just about any fund offered up by the firm, the VBTLX offers a compelling historic performance and comes with very low fees.
- Asset Allocation: The vast majority of assets held by the fund are invested in treasury bonds. However, the fund also holds mortgage-backed securities and corporate bonds with a range of maturities.
- Expense Ratio: With an annual cost of just 0.05%, the fund comes with some of the lowest costs on the market today.
- Dividend Yield: The dividend yield on the fund is currently 1.93%. Over the past five years, yields on the fund have ranged from 1.93% to 2.82% with an average of 2.52%.
- Historic Performance: When it comes to bonds, the performance on the VBTLX has been impressive. Over the past year, the fund has fallen in value by 0.37%. However, over the past three and five years, returns have come in at 5.61% and 3.56%, respectively.
- Morningstar Rating: 3 out of 5 stars.
- MSCI ESG Rating: Not available.
3. Vanguard Long-Term Treasury ETF (VGLT)
The Vanguard Long-Term Treasury ETF was designed for one purpose: to give investors diversified exposure to U.S. Treasury bonds with long-term maturities.
As a result of its investments in the U.S. Treasury, the fund is known for coming with a sustainable, yet high income level. While there are some intermediate-term treasury bonds held in the fund, the vast majority are long-term bonds, with the portfolio maintaining a dollar-weighted average maturity of 10 to 25 years, making it a great opportunity for those looking for long-term income investments.
As with all funds on this list, the VGLT fund comes with highly competitive fees and is known for producing compelling gains and income. Here are the key stats:
- Asset Allocation: 100% of the assets held in the fund’s investment portfolio are U.S. Treasury bonds with maturities ranging from 10 years to 25 years.
- Expense Ratio: The expenses on the fund come in at 0.05%, making it yet another fund with one of the lowest costs you’ll find.
- Dividend Yield: The current dividend yield on the fund is 1.80%. As with most funds on this list, the historic dividend yield has been quite a bit higher, with yields dropping as interest rates dropped during the COVID-19 pandemic. Over the past five years, yields have ranged from 1.77% to 2.95%, averaging 2.40%.
- Historic Performance: The past year has been painful for investors in this fund, with losses of 10.56%. This happened as interest in long-term bonds has dwindled recently, with equity prices climbing and historically low interest rates, but the historic performance of the fund makes it well worth your attention. Over the past three and five years, returns have come in at 7.97% and 3.09%, respectively.
- Morningstar Rating: 3 out of 5 stars.
- MSCI ESG Rating: The ESG rating on the fund is 6.10 according to ETF.com, suggesting that the fund is an attractive option for impact investors.
4. Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
The Vanguard Intermediate-Term Corporate Bond ETF was designed to provide exposure to the intermediate-term corporate bond market. The majority of holdings in the fund have terms ranging from five to 10 years, reducing the interest rate risk associated with longer-term bond investments.
Moreover, the fund invests primarily in high quality corporate bonds. As a result, the fund provides moderate income and a high level of sustainability.
As a fund developed by Vanguard, this ETF comes with industry-low fees. However, low costs don’t mean you’ll have to give up performance.
- Asset Allocation: All assets held in the fund’s portfolio are corporate bonds. The issuers of these bonds have credit ratings ranging from below BBB to AAA, with more than 50% of holdings in BBB-rated issuers and more than 39% in A-rated issuers. This strategy helps to increase income while reducing exposure to undue credit risk.
- Expense Ratio: The costs associated with the fund come in at 0.05%, making it one of the most competitively priced funds on Wall Street.
- Dividend Yield: The dividend yield on the fund clocks in at 2.25%. Over the past five years, yields have ranged from 2.24% to 3.87%, with an average of 3.17%, making it one of the best income generators on this list.
- Historic Performance: Due to its compelling investment strategy, the historic performance of the fund is hard to beat among funds in its class. Over the past year, investors have enjoyed returns of 2.49%, with returns over the past three and five years coming in at 7.73% and 4.51%, respectively.
- Morningstar Rating: 3 out of 5 stars.
- MSCI ESG Rating: According to ETF.com, the ESG rating on the fund is 6.81, making it yet another strong option for those looking to make an environmental or social impact with their investing dollars.
5. Vanguard Tax-Exempt Bond ETF (VTEB)
Next up, the Vanguard Tax-Exempt Bond ETF was developed to track an underlying benchmark that tracks investment-grade municipal bonds in the United States.
Importantly, more than 80% of the fund’s assets are invested in securities that are considered tax-exempt, ultimately reducing that tax burden of your investment portfolio. The fund is designed for investors who are looking for exposure to tax-exempt income through their investment portfolio.
The VTEB is yet another fund with industry-low costs and a compelling historic performance. Here are the key stats:
- Asset Allocation: The vast majority of holdings in the fund’s investment portfolio are municipal bonds that provide tax-exempt income. Moreover, credit ratings on bonds held in the portfolio range from BBB to AAA, with around 3% of holdings in the fund being investments in issuers that have not been rated. AA-rated issuers make up nearly 50% of the portfolio, with the next largest holdings being in AAA-rated issuers.
- Expense Ratio: With an expense ratio of 0.06%, the fund comes with some of the highest costs on this list. Of course, that is still well below the industry average of 0.35% for bond funds.
- Dividend Yield: The VTEB fund comes with a dividend yield of 1.74%. Over the past five years, the fund has paid yields ranging from 1.56% to 2.65% with an average yield of 2.03%. While it’s not the highest yield on this list, the vast majority of income generated by this fund comes with no tax burden.
- Historic Performance: The fund is another top performer when it comes to funds focused on bond investments. In the past year, investors have enjoyed growth of 4.05%, with growth rates over the past three and five years coming in at 4.98% and 3.07%, respectively.
- Morningstar Rating: 3 out of 5 stars.
- MSCI ESG Rating: Not available.
6. Vanguard Mortgage-Backed Securities ETF (VMBS)
As its name suggests, the Vanguard Mortgage-Backed Securities ETF was designed to provide investors with diversified exposure to the U.S. mortgage-backed securities market.
The fund aims to provide a sustainable level of income while limiting exposure to the volatility associated with investing in stocks. Moreover, the fund works to provide dollar-weighted average maturities between three and 10 years, keeping interest rate risk levels lower than would be experienced with longer-term maturities.
Ultimately, investing in the fund provides exposure to some of the most successful government-sponsored mortgage companies in the United States.
Although average for Vanguard, the fees on the fund is well below the average across the industry. Like other funds on this list, you won’t be giving up potential returns in exchange for low costs. It also has one of the best Morningstar ratings on the list. Here are the key stats:
- Asset Allocation: 100% of the holdings in this investment portfolio are government-sponsored mortgage companies, with the vast majority being invested in bonds issued by Fannie Mae, Ginnie Mae, and Freddie Mac.
- Expense Ratio: The costs associated with the VMBS clock in at 0.05%, well below the industry average.
- Dividend Yield: Although it’s not the highest on this list, the dividend yield is 1.08%. Over the past five years, the yield on the fund has ranged from 1.08% to 2.91%, averaging 2.21%. Moreover, due to the assets held in the portfolio, this income is highly consistent.
- Historic Performance: As with others on this list, the VMBS has a pretty strong track record in terms of performance. Over the past year, like many of its peers, the fund has fallen in value by 0.44%, seeing slight declines as investors pile into equities. Throughout the past three and five years, returns have come in at 3.59% and 2.12%, respectively.
- Morningstar Rating: 4 out of 5 stars.
- MSCI ESG Rating: Not available.
7. Vanguard Short-Term Corporate Bond ETF (VCSH)
Last, but definitely not least, the Vanguard Short-Term Corporate Bond ETF was designed to give investors exposure to high-end corporate bonds with a relatively short maturity.
With a dollar-weighted maturity of one to five years, this fund includes the shortest-term holdings compared to any other option on this list. Although shorter terms may cut into returns, they also lead to a reduction of exposure to interest-related risks.
Known for low expenses and strong returns, the VCSH has become a popular choice among investors. Here are the key stats:
- Asset Allocation: As mentioned above, 100% of the assets in the investment portfolio are invested in short-term corporate bonds. The issuers of these bonds range in credit ratings from less than BBB to AAA, with 46.9% of its holdings in BBB-rated companies and 44.2% invested in A-rated companies.
- Expense Ratio: Like the majority of options on this list, the VCSH comes with an annual cost of 0.05%, a full 30 basis points below the industry average.
- Dividend Yield: The fund offers a dividend yield of 1.72%. Over the past five years, the dividend yield on the fund has ranged from 1.72% to 3.25% with an average of 2.41%, meaning investors can expect to generate meaningful income.
- Historic Performance: The fund is known for producing relatively consistent returns, with gains coming in at 1.96% over the past year. Throughout the past three and five years, returns have come in at 4.51% and 2.90%.
- Morningstar Rating: 4 out of 5 stars.
- MSCI ESG Rating: With an ESG rating of 7.03 according to ETF.com, an investment in the fund represents a sustainable move, making it a great choice for impact investors.
Investment-grade bonds are an important part of any investment portfolio. They provide a figurative cushion when bear markets set in. One of the best ways to gain diversified exposure to bonds is through bond funds.
As is the case with any investment, it’s important to do your research before risking your hard-earned money. In particular, pay close attention to fees, dividend yields, and historic performance. If you’re interested in making an impact with your investments, you’ll also want to look into ESG data.
Nonetheless, with a small amount of research, investments in bonds can add the perfect balance to your portfolio.
Bond index vanguard funds best
The Best Vanguard Bond Funds – 11 Popular ETFs for 2021
Bond funds provide broad diversification to bond markets without the need for buying and rolling individual bonds. Vanguard has some of the lowest-cost, highest-liquidity bond funds around. Here we’ll look at the best Vanguard bond funds for 2021.
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In a hurry? Here’s the list:
- BND – Vanguard Total Bond Market ETF
- BNDX – Vanguard Total International Bond ETF
- BNDW – Vanguard Total World Bond ETF
- VCIT – Vanguard Intermediate-Term Corporate Bond ETF
- VGIT – Vanguard Intermediate-Term Treasury ETF
- VGLT – Vanguard Long-Term Treasury ETF
- VGSH – Vanguard Short-Term Treasury ETF
- BIV – Vanguard Intermediate-Term Bond ETF
- VMBS – Vanguard Mortgage-Backed Securities ETF
- VTIP – Vanguard Short-Term Inflation-Protected Securities ETF
- VTEB – Vanguard Tax-Exempt Bond ETF
Introduction – Why Bonds?
Bonds serve a variety of purposes in investment portfolios. They can provide a source of steady income in retirement, tax-free interest for high income earners (municipal bonds), protection from inflation (TIPS), as well as volatility reduction and downside protection for long-term investors due to their uncorrelation to stocks.
Vanguard has low-fee options for all these types of bonds, listed below. Bonds – and especially, treasury bonds – are a crucial ingredient in a well-diversified long-term investment portfolio. Bond funds eliminate the idiosyncratic risks specific to individual issuers.
Bonds are considered less risky and more stable than stocks. They are usually the best diversifier to hold alongside stocks; when stocks zig, bonds tend to zag, and vice versa. This makes them particularly attractive for risk-averse investors and retirees. Popular lazy portfolios that utilize bonds as a major component include the traditional 60/40 portfolio and the All Weather Portfolio. For a more comprehensive overview of bonds as an investment, check out this page.
Vanguard is famous for providing some of the lowest-cost, most popular bond ETFs available.
Let’s dive into the 11 best Vanguard bond funds.
The 11 Best Vanguard Bond Funds
Vanguard has great, low-fee options for total bond market, corporate bonds, mortgage bonds, treasury bonds, municipal bonds (munis), TIPS, and more:
BND – Vanguard Total Bond Market ETF
The Vanguard Total Bond Market ETF (BND) is one of the most popular bond funds out there, with over $275 billion in assets. The fund provides broad access to the U.S. investment-grade bond market by tracking the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. The fund is comprised of roughly 60% government bonds, with the rest coming from agencies and corporate debt. This ETF has a low expense ratio of 0.035%.
BNDX – Vanguard Total International Bond ETF
BNDX is simply the international (ex-US) version of BND above. The Vanguard Total International Bond ETF seeks to track the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), providing broad access to non-U.S. investment-grade bonds. The fund has an average maturity of 10 years, over $150 billion in assets, and an expense ratio of 0.08%.
BNDW – Vanguard Total World Bond ETF
The Vanguard Total World Bond ETF (BNDW) is simply the sum of the previous two funds (BND + BNDX), providing the broadest diversification to a global index of bonds across different bond classes. Specifically, the fund is roughly 52% BNDX and 48% BND. It seeks to track the performance of the Bloomberg Barclays Global Aggregate Float Adjusted Composite Index. This ETF has an expense ratio. of 0.06%.
VCIT – Vanguard Intermediate-Term Corporate Bond ETF
Those specifically seeking income may look to corporate bonds with their relatively higher yields. The Vanguard Intermediate-Term Corporate Bond ETF (VCIT) is a popular choice for such investors, with over $30 billion in assets. This fund seeks to track the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index. It has an expense ratio of 0.05%.
VGIT – Vanguard Intermediate-Term Treasury ETF
Treasury bonds may be preferable to long-term investors for their lower correlation to stocks than corporate bonds. Treasury bonds are also the safest type of bonds. The Vanguard Intermediate-Term Treasury ETF (VGIT) seeks to track the Bloomberg Barclays U.S. Treasury 3–10 Year Bond Index. This fund has an average maturity of about 6 years and an expense ratio of 0.05%.
VGLT – Vanguard Long-Term Treasury ETF
Investors with a longer time horizon who still want bond exposure may seek out long-term treasury bonds. The Vanguard Long-Term Treasury ETF (VGLT) seeks to track Bloomberg Barclays U.S. Long Treasury Bond Index. The fund has an average maturity of about 25 years and an expense ratio of 0.05%.
VGSH – Vanguard Short-Term Treasury ETF
Those with a short time horizon will be looking for short-term bonds. The Vanguard Short-Term Treasury ETF (VGSH) seeks to track the Bloomberg Barclays U.S. Treasury 1–3 Year Bond Index. This fund has an expense ratio of 0.05%.
BIV – Vanguard Intermediate-Term Bond ETF
The Vanguard Intermediate-Term Bond ETF (BIV) provides access to the entire intermediate-term investment-grade bond segment comprised of both government and corporate debt. It tracks the Bloomberg Barclays U.S. 5-10 Year Government/Credit Float Adjusted Index. The fund has over $14 billion in assets and an expense ratio of 0.05%.
VMBS – Vanguard Mortgage-Backed Securities ETF
Investors interested in mortgage bonds can access them via the Vanguard Mortgage-Backed Securities ETF (VMBS), which seeks to track the Bloomberg Barclays U.S. MBS Float Adjusted Index. This bond fund invests primarily in U.S. agency mortgage-backed securities issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). It has an expense ratio of 0.05%.
VTIP – Vanguard Short-Term Inflation-Protected Securities ETF
Those seeking short-term inflation-linked bonds will benefit from the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP). TIPS provide protection from unexpected, realized inflation. The fund seeks to track the Bloomberg Barclays US Treasury TIPS (0-5 Y) Index and has an expense ratio of 0.05%.
VTEB – Vanguard Tax-Exempt Bond ETF
Interest from municipal bonds, or munis for short, is tax-free at the federal level, providing tax savings for income investors, particularly high income earners. The Vanguard Tax-Exempt Bond ETF (VTEB) seeks to track the S&P National AMT-Free Municipal Bond Index and has an expense ratio of 0.06%.
Where to Buy These Vanguard Bond ETFs
All these Vanguard bond ETFs are available on M1 Finance. The broker has zero transaction fees and zero account fees, and offers fractional shares, dynamic rebalancing, and a modern, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.
Canadians can find the above ETFs on Questrade or Interactive Brokers. Investors outside North America can use eToro or possibly Interactive Brokers.
Interested in more Lazy Portfolios? See the full list here.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.
3 Top Vanguard Fixed-Income Funds
Some Vanguard fixed-income funds have consistently outperformed their benchmarks and provide multiple benefits to investors with their low fees and other characteristics: the Vanguard High-Yield Tax-Exempt Fund Investor Shares (VWAHX), the Vanguard High-Yield Corporate Fund Investor Shares (VWEHX), and the Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX).
- Vanguard offers a wealth of funds for any investor's appetite. The three funds in this article are some of the best in the fixed-income sector.
- When considering fixed-income funds, the underlying index determines yield and risk exposure.
- These funds only represent those offered by Vanguard and while there are funds offered by competitors with the same underlying index, they will most likely have higher expense ratios and possibly less liquidity,
Although historical performance is not indicative of future performance, investors should still take past performance against key benchmarks into consideration. Vanguard fixed-income fund outperformers provide exposure to various bonds, such as long-term tax-exempt municipal bonds and high-yield tax-exempt bonds.
These three Vanguard fixed-income funds have low to moderate risk–reward potential and both tax-exempt funds have outperformed their benchmarks over the past 10 years.
Vanguard High-Yield Tax-Exempt Fund Investor Shares (VWAHX)
The Vanguard High-Yield Tax-Exempt Fund Investor Shares is a municipal bond fund that seeks to provide a high, yet sustainable, level of income that is tax-exempt at the federal level. Under normal market conditions, the fund invests the lion's share of its total net assets in investment-grade municipal bonds determined by nationally recognized rating agencies.
The Vanguard High-Yield Tax-Exempt Fund's benchmark is the Bloomberg Municipal Bond Index, which includes most investment-grade tax-exempt bonds issued by municipalities.
There is a minimum initial investment of $3,000. Thereafter, investors are charged an annual net expense ratio of 0.17%, which is significantly lower than the average ratio of municipal bond funds with similar holdings at 0.60%, according to Vanguard.
Vanguard High-Yield Corporate Fund Investor Shares (VWEHX)
The Vanguard High-Yield Corporate Fund Investor Shares is a bond fund that seeks to provide a high level of income. The Vanguard High-Yield Corporate Fund is managed by the Wellington Management Company and requires a minimum investment of $3,000. The fund charges a low annual expense ratio of 0.23%, which is far lower than similar corporate bond funds, according to Vanguard.
Contrary to the tax-exempt fund above, the Vanguard High-Yield Corporate Fund invests the vast majority of its total net assets in corporate bonds that are rated below Baa by Moody's or have equivalent ratings by any independent bond rating agency. These are primarily high-risk, high-yield corporate bonds, also known as "junk bonds." The fund's approach seeks to provide consistent income while minimizing the loss of principal and defaults.
The fund's benchmark is the High-Yield Corporate Composite Index.
Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)
The Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares is a municipal bond fund that seeks to provide investors with a moderate but sustainable level of federally tax-exempt income. The fund is managed by the Vanguard Fixed Income Group and charges an annual expense ratio of 0.17%, which is lower than the average expense ratio of similar municipal bond funds, according to Vanguard. To invest in this fund, a minimum investment of $3,000 is required.
Under normal circumstances, the fund is expected to maintain a dollar-weighted average maturity between six and 12 years. However, the fund typically invests in investment-grade municipal bonds with a predictable duration profile between four and five years. Additionally, the fund is expected to invest at least 75% of its holdings in municipal bonds in the top three credit rating categories determined by nationally recognized rating organizations, such as Moody's or Standard and Poor's.
The fund's benchmark is the Bloomberg 1-15 Year Municipal Index.
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Over 30 million investors have registered with Vanguard to accomplish their financial goals. Whether you’re saving to buy a new home, secure your retirement or invest for your higher education, Vanguard has the right set of financial products to help you realize your dreams.
Take a look at how investing in Vanguard bond funds can build your wealth in the long run.
What are Bond Funds?
Bond funds are companies that invest heavily in bonds or other types of debt securities. These bond funds can include mutual funds, exchange-traded funds (ETFs), closed-end funds or unit investment trusts.
There are various factors that can impact your earnings from the bond funds such as its risk, return, duration and volatility. Based on the investment goals and policies, a bond fund may increase its investments in a particular type of bond or debt security. These bonds can include government bonds, municipal bonds, corporate bonds, mortgage-backed securities and zero-coupon bonds.
Best Vanguard Bond Funds Right Now
The low expense ratios coupled with its wide range of investment options make Vanguard bond funds a hot pick for investors. You can consider investing in these bond funds from Vanguard to grow your wealth.
1. Extended Duration Treasury ETF (NYSEARCA: EDV)
The Vanguard Ext Duration Treasury ETF has been on the market since 2007. It offers exposure to long-dated U.S. treasury bonds. The ETF tracks the Barclays Capital U.S. Treasury STRIPS with maturities ranging from 20 to 30 years.
EDV has an expense ratio of 0.7% and a dividend yield of 2.24%. The 52-week range is $121.99 to $177.71 and its average daily volume is 255,816 shares. EDV has $1.02 billion in assets under management (AUM) with a 1-year return of -8.98%, a 3-year return of 10.80% and a 5-year return of 5.05%.
Hypothetical Growth of $10,000
2. Long-Term Treasury ETF (NASDAQ: VGLT)
The Vanguard Long-Term Treasury ETF has been listed on the market since 2009. It offers exposure to long-term U.S. government bonds. This ETF tracks the Barclays U.S. Long Government Index and focuses on U.S. treasuries that mature in 10 years or more.
This ETF has an expense ratio of 0.05% and has an annual dividend yield of $1.83 per share. It has AUM of $2.5 billion. The Vanguard Long-Term Treasury ETF has high liquidity with an average daily trade volume of 361,161 shares. It has a 1-year return rate of 19.16%, a 3-year return rate of 34.87% and a 5-year return rate of 46.46%. This ETF has a 52-week high of $108.47 and a 52-week low of $80.97.
Hypothetical Growth of $10,000
3. Long-Term Bond ETF (NYSEARCA: BLV)
The Vanguard Long-Term Bond ETF has been open to investors since 2007. It offers exposure to all types of bonds with a maturity of 10 years or more. This ETF tracks the Barclays U.S. Long Government/Credit Index.
This ETF has an expense ratio of $0.07% and has an annual dividend yield of $3.45 per share. It has an AUM of $5.4 billion. The Vanguard Long-Term Bond ETF has high liquidity and trades over 242,895 shares per day. It has a 1-year return rate of 16.19%, a 3-year return rate of 31.72% and a 5-year return rate of 51.27%. This fund has a 52-week high of $117.13 and a 52-week low of $88.93.
Hypothetical Growth of $10,000
4. Long-Term Corporate Bond ETF (NASDAQ: VCLT)
The Vanguard Long-Term Corporate Bond ETF has been listed on the market since 2009. It offers exposure to investment-grade corporate bonds in the U.S. This ETF tracks the Barclays U.S. Corporate Index and focuses on bonds with a maturity of 10 years or more.
This ETF has an expense ratio of 0.05%. It has a 52-week high of $112.41 and a 52-week low of $76.45. The Vanguard Long-Term Corporate Bond ETF has an AUM of $5.5 billion. It has high liquidity and has an average daily trade volume of 241,133 shares. This ETF has a 1-year return rate of 13.54%, a 3-year return rate of 28.90% and a 5-year return rate of 54.80%.
Hypothetical Growth of $10,000
5. Mega Cap Growth ETF (NYSEARCA: MGK)
The Vanguard Mega Cap Growth ETF has been open to trade since 2007. It offers exposure to mega-cap companies within the growth sector of the U.S. economy. This ETF tracks the MSCI U.S. Large Cap Growth Index.
The expense ratio of this ETF is 0.07% and has an annual dividend yield of $1.23 per share. It has a 52-week high of $201.18 and a 52-week low of $107.97. The Vanguard Mega Cap Growth ETF has high liquidity and trades more than 260,623 shares per day. It has an AUM of $9.6 billion and has a 1-year return rate of 43.38%, a 3-return rate of 85.19% and a 5-year return rate of 139.55%.
Hypothetical Growth of $10,000
Best Online Brokers for Bond Funds
Bond funds trade similar to stocks and can be bought and sold on major stock exchanges like the NYSE and NASDAQ. The low cost and high trade volume of bond funds can be alluring to new investors and seasoned traders.
Investors gain instant diversification of their portfolio by investing in bond funds. Depending on the type of bond fund you choose to invest in, you can get exposure to multi-class companies in a single trade.
Benzinga has handpicked these top online brokers to get you started.