Vanguard bond funds alone, even the best one, cannot make you wealthy, but intelligent investors know all too well that they can provide diversification to your retirement portfolio and be a good source for short-term investments financial goals.
When it comes to investing, whether it is in bond funds, mutual funds or individual stocks, there are a lot of fund companies out there.
That can make choosing a fund company that best suits your needs overwhelming.
However, Vanguard (the world’s second largest mutual funds) is terrific at bond funds, thanks to its low operating expenses, diversification, cost efficiency and professional management.
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In fact, according to Vanguard’s data, “82% of their low-cost bond funds performed better than their peer-group averages over the past 10 years.”
But which ones are the best Vanguard bond funds?
Having a list of the best Vanguard bond funds can help you meet your financial goals. You can use bond funds if you’re looking to make a major purchase in two years, such as buying a house.
Perhaps you want to diversify your portfolio.
Or you want to invest in the long term. You may use Vanguard bond funds as a long-term investments strategy such as saving for retirement.
Or, you need income producing investment. Bond funds can be useful if you’re already retired and want income and don’t want investments that fluctuate in value such as stocks. If so, consider the best Vanguard bond funds.
However, young and aggressive investors should allocate less money in bond funds. The reason is because bonds have less potential to make your money grow.
Other investments such as stocks or real estate are generally better investments that have the potential to build substantial, generational wealth.
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Best Vanguard Bond Funds
The best Vanguard bond funds are superior investment vehicles that can help you accomplish several financial goals. Following is a list of the best Vanguard bond funds to choose from so you can make an informed decision.
1. Vanguard Total Bond Market Index Fund (VBTLX)
The first in our list of the best Vanguard bond funds is the Vanguard Total Bond market Index Fund (VBTLX). This fund was designed to give investors a wide exposure to US investment-grade bonds. As such, the fund invests in U.S. treasuries and mortgage backed securities.
However, one of the risks of the fund is that increases in interest rates may cause the price of the bonds to decrease.
But the benefits of investing in US treasuries is that it maintains the safety of government backing. In addition, they are a great choice if you’re not in a high federal tax bracket.
Key features:
- Expense ratio: As of 4/29/2021, the fund has an expense ratio of 0.05. That is very low comparing to other similar funds, which have an average expense ratio of 0.61%. From a cost standpoint, VBTLX is in fact cheaper than its peers.
- Minimum investment: VBTLX has a low minimum initial investment requirement of $3,000, which is reasonable. And each subsequent investment needs to be at least $1.
- Historic performance: VBTLX has delivered a strong performance overall. It’s 5-year annual return is 3.10%. This bond fund is also a good option if you have a short term goal as it’s 3-year return is 5.54%.
So, if you’re looking for the best bond funds, then you may want to consider the Vanguard Total Bond Market Index Admiral (VBTLX) as a possible option.
2. Vanguard Total Bond Market ETF (BND)
This Vanguard ETF (exchange-traded fund) was designed to provide a broad exposure to taxable investment grade US dollar denominated bond market.
This ETF offers high potential for investment income. Therefore, it is a good option if you’re looking for a reliable income stream. It is also the bond fund to diversify the risks of stocks in a portfolio. This exchange traded fund is ranked as number 7 in intermediate core bond.
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Key features:
- Expense ratio: BND has an expense ratio of 0.035%. This is a very low expense ratio as other similar funds charge expenses as high as 0.61%.
- Minimum investment: As of 9/12/2021, the price of a share is 86.27.
- Dividend yield: BND returns a $0.14 in dividends every month to its investors.
- Historic performance: Investors like you and me want great results. BND has had a strong performance. Its 3-year return is an outstanding 5.59%, while it’s 5-year return is a solid 3.21%.
3. Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
The Vanguard Intermediate Term Corporate Bond is an exchange traded fund or ETF which has two main objectives. First, it seeks to provide investors with a moderate and sustainable level of current income. Second, the fund invests primarily in high-quality investment grade corporate bonds, making it a favorite among Vanguard funds.
Key features:
- Expense ratio: According to ETF.com, the average expense ratio for bond ETFS is 0.35%. The cost associated with VCIT is 0.05%, making it very low comparing to other funds and making it very attractive to investors.
- Minimum investment: The price to buy a share of VCIT is $95.46 as of 9/12/2021. Please remember to check the price before you make a purchase as it fluctuates from time to time.
- Dividend yield: This fund has an annual dividend yield of 2.45%.
- Historic performance: In terms of performance, VCIT is doing very well. It has an outstanding 3 year return of 7.65%; a 5-year return of 4.53% and a 10 year return of 4.84%. Indeed, the performance of this Vanguard bond fund almost resembles the performance of most mutual funds.
4. Vanguard Tax-Exempt Bond ETF (VTEB)
The fourth of the best Vanguard bond funds is the VTEB. This fund seeks to track the S&P’s National AMT-Free Municipal Bond Index, which measures the performance of the investment-grade segment of the U.S. municipal bond market.
The municipal bonds are primarily from state or local government or agencies whose interest is exempt from US federal income taxes and the federal alternative minimum tax (AMT).
Key features:
- Expense ratio: The expense ratio of this fund is 0.06%, one of the lowest right now.
- Minimum investment: As of 9/10/2021, the price for a share is $55.15, making it a very reasonable price.
- Dividend yield: The annual dividend yield is 1.74%.
- Historic performance: Relative to its peers, VTEB has a strong performance. According to ETF Database, the 1 year return is 3.07%; the 3 year-return is 15.83%; and the 5-year return is 16.86%.
5. Vanguard Long-Term Treasury ETF (VGLT)
If you want a bond ETF that invests in US Treasuries or if you are in a high federal tax bracket, U.S. Treasury bond funds may be right for you. If so, then you should consider the Vanguard Long-Term Treasury (VGLT).
Overall, this bond ETF invests primarily in U.S. Treasury bonds. It seeks to provide a high and sustainable level of current income. It maintains a dollar-weighted average maturity of 10 to 25 years.
Key features:
- Expense ratio: As with most Vanguard bond funds, the VGLT has a very low expense ratio of 0.05%, making it one of the best for investors.
- Minimum investment: The price of a share is $90.64 as of 09/13/2021.
- Dividend yield: VGLT’s annual dividend is 2.11%.
- Historic performance: This bond ETF has a strong 3-year return of 9.20%; a 5-year return of 3.56% and a 10 year return of 5.61%. ETF.com gives VGLT an A rating.
6. Vanguard Mortgage Backed Securities ETF (VMBS)
Just as the VGLT fund, the Vanguard Mortgage Backed Securities (VMBS) seeks to provide a moderate and sustainable level of current income. It also invests primarily in U.S. agency mortgage-backed pass through securities issued by Ginnie Mae, Fannie Mae and Freddie Mac.
VMBS is very cheap currently with a share of $53.45. It also provides a lot of diversification to your portfolio as it holds over 300 securities, which is by far the most compared to its peers.
- Expense ratio: The expense ratio of VMBS is 0.05%, one of the lowest right now.
- Minimum investment: As of 9/10/2021, the market price for this fund is $53.43.
- Dividend yield: The annual dividend for this fund is 1.28%.
- Historic performance: VMBS’ historic performance is also very strong. It has a 3-year return of 11.23% and a 5 year return of 10.47%.
For investors who have a long term vision, you should consider buying this bond ETF as its expense ratio is very low and as it provides a high level of exposure to the mortgage backed securities market.
7. Vanguard Total International Bond Index Fund (VTABX)
International bond funds may be advantageous if you want a bond fund that invests primarily on foreign markets. They are great if you want more diversification. VTABX seeks to track the performance of an index fund that includes international government, agency, and corporate securities mostly from developed countries.
As with other bond funds, this fund may be subject to risks in interest rate. It may also have additional risks such as country/regional risks as most of the fund’s exposure in in developed and emerging markets.
Key features:
- Expense ratio: As of 2/26/2021, the fund has an expense ratio of 0.11. That is still low comparing to other similar funds, which have an average expense ratio of 0.61%. From a cost perspective, VTABX is in fact cheaper than its peers.
- Minimum investment: VTABX has a low minimum initial investment requirement of $3,000, which is reasonable. And each subsequent investment needs to be at least $1. Note that this bond fund is also available as an ETF (BNDX) starting at the price of one share.
- Historic performance: The fund was launched in 2013. Therefore, it’s too early to establish a meaningful track record. However, the fund has returned a 0.51% over the past year and a 2.96% return over the past 5 years.
So, if you’re looking to add international bond exposure to your portfolio, then this is one of the top Vanguard funds is to have.
8. Vanguard Short-Term Corporate Bond ETF (VCSH)
Lastly but not least, the Vanguard Short-Term Corporate Bond ETF (VCSH) is on e of the best bond funds. Of all bond funds, short term bonds including corporate bonds are the least sensitive to interest rate fluctuations.
So this stability makes short-term bond funds appropriate investments. The VCSH seeks to provide current income with modest price fluctuation. The fund invests primarily in high-quality corporate bonds. It maintains a dollar-weighted average maturity of 1 to 5 years.
Key features:
- Expense ratio: The expense ratio of VCSH is 0.05%, one of the lowest right now
- Minimum investment: As of 9/10/2021, the price for a single share is $82.64.
- Dividend yield: The annual dividend yield is 1.72%.
- Historical performance: This bond ETF has a strong performance. It has a 3 year return of 13.37% and a 5 year return of 15.26%.
So if you’re looking for a short-term bond fund, the Vanguard Short-Term Corporate Bond ETF is for you.
In conclusion
Bond funds are excellent investment vehicles to use and Vanguard has some of the best out there. Bond funds can make you money through dividends, capital gains and appreciation.
Although there are an overwhelming number of bond ETFs, not all of them are created equal. That’s why you need to look for a bond fund that perform well, has low operating cost and managed by fund companied with experience. And Vanguard is well-known for bond funds.
If you’re looking to invest beyond the Vanguard bond funds, consider the best Vanguard funds.
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