The bond market is replete with different debt products, as governments and corporations issue all forms of bonds to raise capital for their different projects. Building a diversified bond portfolio can be capital intensive, but thanks to financial firms, like the Vanguard Group, there are many bond funds with diversified bond portfolios to choose from. The second-largest asset manager in the world, the Vanguard Group has a variety of bond funds designed to appeal to a wide range of investors, so in this post, we will discuss the best Vanguard bond funds to buy in 2021.
What is a Vanguard bond fund?
A Vanguard bond fund is a fund managed by the Vanguard Group that invests only in bonds or other debt securities. These are different from stock funds, which are largely invested in equities. A bond fund is a basket of bonds — issued by different entities and of different maturity dates — traded as a single unit.
There are different Vanguard bond funds through which individuals can invest in the bond market. The funds make periodic payments as interest, and investors can trade freely their units in the funds at any time.
Invest in Vanguard bond funds in 3 steps
Determine the funds you want to buy
There are a plethora of bond funds issued by Vanguard. The key factors in determining the bond funds to buy are where the bonds are issued (there are bond funds for U.S. domestic bonds or international bonds) and how much risk you are comfortable with. The risk in any bond fund is dependent on the average maturity and the creditworthiness of the entities that issued the bonds in the portfolio.
Open a trading account
You can buy Vanguard bond funds directly from the firm or via an online broker. Take note of commissions and management fees. If you are buying directly from the firm, there will be no trading commissions, but if you are buying from a broker, your costs include both commissions and management fees.
After you have funded your account, you can start trading. You buy the bond funds you want and receive your monthly interests, which you may choose to reinvest. Anytime you need your capital, you can sell your units in the funds. This is best done when the interest rates are declining and bond prices are increasing in value.
Where can I trade Vanguard bond funds?
Vanguard bond funds can be traded through a Vanguard Brokerage Account. This allows you to invest in various bonds (corporate, government, or municipal) at low commission fees. However, there are online brokers through which you can buy any bond fund of choice, including Vanguard bond funds. They are listed in the table below.
Best Vanguard bond funds to buy now
These are the best Vanguard bond funds to buy in 2021 owing to certain parameters, such as yield, average maturity, asset diversification, and expense ratio. The top10 Vanguard bond funds include:
- Vanguard Total Bond Market Index Fund ETF Shares (BND)
- Vanguard Long-Term Treasury ETF (VGLT)
- Vanguard Tax-Exempt Bond ETF (VTEB)
- Vanguard Short-Term Corporate Bond ETF (VCSH)
- Vanguard Long-Term Corporate Bond Index (VCLT)
- Vanguard Intermediate-Term Corporate Bond (VCIT)
- Vanguard Long-Term Bond Index Fund ETF Shares (BLV)
- Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP)
- Vanguard Total International Bond Index Fund ETF Shares (BNDX)
- Vanguard Emerging Markets Government Bond Index Fund ETF Shares (VWOB)
Vanguard Total Bond Market Index Fund ETF Shares (BND)
BND tracks the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which measures the performance of a wide spectrum of government, corporate, and international dollar-denominated bonds with maturities of more than one year. The investments are selected through the sampling process, and at least 80% of the fund’s assets are invested in bonds held in the index. BND has risen by 1.03% in the last year.
Vanguard Long-Term Treasury ETF (VGLT)
VGLT tracks the performance of the Bloomberg Barclays U.S. Long Treasury Bond Index. The fund invests in U.S. Treasury bonds with a long-term dollar-weighted average maturity between 10 and 25 years. VGLT has a 12-month yield of 2.32% and a sizable $6.04bn in assets under management (AUM). The fund has slipped by 1.93% within the last year.
Vanguard Tax-Exempt Bond ETF (VTEB)
VTEB tracks the S&P National AMT-Free Municipal Bond Index, which measures the performance of the investment-grade segment of the U.S. municipal bond market. The fund invests in municipal bonds issued by state or local governments whose interest is exempt from U.S. federal income taxes and the federal alternative minimum tax (AMT). The fund has a dividend yield of 1.96%, with $11.89bn in AUM. The bond has appreciated by 0.94% in the last year.
Vanguard Short-Term Corporate Bond ETF (VCSH)
VCSH tracks the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index. The fund invests in dollar-denominated, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between 1 and 5 years. The fund has a dividend yield of 2.2%, with $44.06bn AUM. VCSH has appreciated by 1.74% within the last year.
Vanguard Long-Term Corporate Bond Index (VCLT)
VCLT tracks the Bloomberg Barclays U.S. 10+ Year Corporate Index. The fund invests in U.S. long-term dollar-weighted, investment-grade corporate bonds issued by financial, industrial, and utility companies with, at least, ten years maturity period. VCLT has a dividend yield of 3.25%, with $6.1bn in AUM. The fund has slid by 5.75% in the last three months.
Vanguard Intermediate-Term Corporate Bond (VCIT)
VCIT tracks the performance of the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index. The fund invests in dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between 5 and 10 years. VCIT has an annual yield of 2.7%. Year to date, the fund's total return is 8.8%. The fund has a credit rating of BBB, higher than the category average credit rating of BB.
Vanguard Long-Term Bond Index Fund ETF Shares (BLV)
BLV tracks the performance of the Bloomberg Barclays U.S. Long Government/Credit Float Adjusted Index. The fund invests in medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities of greater than ten years. The fund has a dividend yield of 2.95%, with $11.48bn in AUM. YTD return for BLV is -3.48%.
Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP)
VTIP tracks the performance of the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index. The fund invests in inflation-protected public obligations issued by the U.S. Treasury with maturities of less than five years. VTIP has a dividend yield of 1.19%, with $41.45 in AUM. The fund has returned 3.7% in the last year.
Vanguard Total International Bond Index Fund ETF Shares (BNDX)
BNDX tracks the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). This fund invests in a broad-based measure of the global, investment-grade, fixed-rate debt markets. BNDX has a dividend yield of 0.96%, with $168.9bn in AUM. BNDX has returned -0.66% in the last year.
Vanguard Emerging Markets Government Bond Index Fund ETF Shares (VWOB)
VWOB tracks the performance of Bloomberg Barclays USD Emerging Markets Government RIC Capped Index. The fund invests in dollar-denominated bonds issued by governments and government-related issuers in emerging market countries. VWOB has a dividend yield of 4.26%, with $3.05bn in AUM. The fund has slid by 0.66% in the last year.
Expert tip on investing in Vanguard bond funds
When investing in bonds, keep an eye on the interest rates because they have an inverse relationship. As the interest rate rises, bond prices depreciate and vice versa.
Why trade Vanguard bond funds?
There are many good reasons why investors should trade in Vanguard bond funds. Firstly, they help to preserve capital. This is especially useful for investors that would like to save money for a future project such as medical expenses, college fees for children, retirement fund. Secondly, it is more likely to guarantee a return on capital, unlike other asset classes such as stocks where an investor can lose his capital. Investing in the Vanguard bond fund also offers a reliable cash stream in the form of coupon payments. Investors receive interest payments on their capital during the tenor of the bond. Vanguard bond funds help you to diversify your investment portfolio and reduce systemic risks.
Frequently Asked Questions
Vanguard Total Bond Market Index Fund ETF Shares (BND).
Vanguard Bond Fund is not a good investment right now because you can get higher returns in other asset classes, such as stocks
Both institutional and retail investors can invest in bond funds.
Shares represent units of ownership in a company, while a bond fund is a basket of bonds traded as a unit. A bond is a debt instrument issued by a corporate entity or government.
Yes, they are a good investment for beginners because of their low risk.
The Vanguard Bond Fund has over $1trn in assets.