Vanguard bond funds are becoming more popular as investors seek enough protection from the negative consequences of equity market shocks, and investing in bond index funds is the way to go. These fund types provide excellent diversification for money and enable for automatic reinvestment of bond dividends. They are also highly liquid and reasonably priced.

Vanguard is one of the market’s largest issuers of bond funds, and in this piece, we’ve listed a few options to examine when looking for the proper bond index funds to Build a Bond Portfolio.

Definition of Bond Index Funds

Index funds are exchange-traded funds (ETFs) or mutual funds that invest in stock collections that match the firms and performance of a market index. Index funds, on the other hand, invest in both equities and bonds. A bond index fund, unlike a stock index fund, only invests in bonds. Read more to Understand Bond Funds.

However, both index funds operate similarly, with the main variation being in what they invest in, and the investment process is the same in both circumstances.

An average bond index fund invests largely in several bond kinds, such as US treasury, savings, agency, and municipal bonds, and regardless of the bond type a bond fund concentrates on, the operation of these bond funds remains the same.

For example, when an investor makes a loan to a business or other government agency, the agency repays it at predetermined interest rates over a set period of time, and the loan with its interest payments is the bond.

Best Vanguard Bond Funds To Choose From

Vanguard is a well-known name in the investment world, and the corporation is known for a wide range of exchange-traded funds and index funds. Millions of investors put their money in Vanguard’s low-cost, liquid funds, and as a result, Vanguard is one of the largest fund firms in terms of assets under management.

However, it is crucial to know that not all Vanguard bond funds are created equal, therefore we have compiled a list of the top Vanguard bond funds to invest in.

1. Vanguard Total Bond Market ETF

The first on the list is the Vanguard Total Bond Market ETF, which, as the name suggests, invests in the whole US dollar-denominated bond market, excluding tax-exempt or inflation-protected bonds. We put BND on this list because it is one of the few bond ETFs that provides industry-leading returns while charging industry-low fees. Approximately 60% of BND’s holdings are US government bonds, while 40% are highly rated corporate bonds.

Vanguard maintains its reputation for providing the lowest-cost funds with BND, as it is the cheapest bond available at 0.035%, and the current dividend yield of BND is 1.93%.

However, you may expect an above-average return from BND as a total bond market fund, since the five-year and three-year returns are 2.98% and 5.41%, respectively, and BND has an ESG rating of 6.28, indicating that its assets are relatively resistant to environmental and governmental changes.

2. Vanguard Total Bond Market Index Fund

The second fund on our list is the Vanguard Total Bond Market Index Fund Admiral Shares. Because it is an Admiral shares fund, you cannot invest less than $3,000 to begin. However, when you consider the low costs and the great historical performance, this huge investment is not that awful.

Furthermore, adding Vanguard Total Bond Market Index Fund Admiral Shares to your portfolio exposes it to the US market, and because the bond fund only invests in mortgage-backed securities and treasury inflation-protected securities, diversification is good because the fund invests in multiple segments.

When it comes to costs, VBTLX has one of the lowest expense ratios in the market at 0.05%, and it now pays 1.93% in dividend yield, though it has paid higher on average over the past five years.

3. Vanguard Long-Term Treasury ETF

The Vanguard Long-Term Treasury ETF is excellent for long-term commitments, particularly for investors seeking exposure to longer-dated government bonds, and the underlying index is the Bloomberg Barclays U.S. long treasury bond index.

The VGLT invests clients’ money in long-term treasury bonds with typical maturities ranging from 10 to 25 years, but it has a low expense ratio of 0.04%, so you don’t have to worry.

4. Vanguard Tax-Exempt Bond ETF

The Vanguard Tax-Exempt Bond ETF is ideal for investors looking for a product that provides federal tax-free income while withstanding minor price and income fluctuations.

The VTEB offers tax-exempt bonds, which makes it a great alternative because its 1.3% tax-free yield until maturity is better than the treasury yield without tax. The Vanguard Tax-Exempt Bond also makes an effort to mimic the Standard & Poor’s National AMT-Free Municipal Bond Index, which assesses the performance of the investment grade segment of the US municipal bond market.

5. Vanguard Mortgage-Backed Securities ETF

Because conservative investors are more concerned about the uneven economy and how it may effect their earnings, the Vanguard Mortgage-Backed Securities ETF eliminates this concern by guaranteeing returns even in the most severe storms.

The Vanguard Mortgage-Backed Securities ETF invests in a diverse group of U.S. agencies involved in residential mortgages, thus this bond investment combines variety and strength in a single vehicle.

6. Vanguard Long-Term Bond Index Admiral Shares

The last on our list is the Vanguard Long-Term Bond Index Admiral Shares, a long-term bond fund that tracks the performance of the Bloomberg Barclays U.S. long government bond index. It is the greatest low-cost bond fund and a diversified bond investment for investors that like U.S. investment grade corporate bonds with maturities of more than ten years.

Takeaway

Vanguard bond funds are a very efficient method to gain investment-grade bond exposure for your portfolio, and the company offers low-interest-rate bond funds with extensive exposure to both investment-grade municipal bonds and investment-grade corporate bonds. Furthermore, most Vanguard mutual funds are available as ETFs, allowing you to use the ETF equivalents even if you are a rookie investor with no access to mutual funds.

FAQs

1.  Are Vanguard bond funds low-risk investments?

While bonds are generally thought to be less risky than stocks, the risk level of a Vanguard bond fund is determined by its holdings and investment strategy. Some bond funds, such as those that invest in lower-rated corporate bonds or international bonds, may pose higher risks. Before investing, read the prospectus and understand the risk profile of the investment.

2.  What types of bond funds does Vanguard offer?

Vanguard offers a diverse selection of bond funds, including government bond funds (Treasury, agency, and municipal bonds), corporate bond funds, international bond funds, inflation-protected bond funds, and others.

3.  How do I choose the right Vanguard bond fund for me?

Take into account your investment objectives, risk tolerance, and time horizon. Bond funds differ in terms of risk and potential rewards. Vanguard provides thorough information about each fund, such as its objectives, holdings, past performance, and risk considerations, to assist you in making an informed decision.

4.  What fees are associated with Vanguard bond funds?

Vanguard bond funds have expense ratios, which represent the annual fees as a percentage of the fund’s assets. These fees cover the fund’s management and operating costs. Vanguard is known for its low-cost investment options, and its bond funds generally have competitive expense ratios.

5.  How do I invest in Vanguard bond funds?

You can invest in Vanguard bond funds through various channels, including Vanguard’s website, brokerage accounts, financial advisors, and employer-sponsored retirement plans. You can typically open an account online, select the bond fund(s) you want to invest in and fund your account.