Find income & stability with a bond ETF
Reduce your investment risk
A bond ETF could contain hundreds—sometimes thousands—of bonds, making an ETF generally less risky than owning just a handful of individual bonds.
Add stability to your portfolio
When included in a well-balanced portfolio, bond ETFs can help limit the risks associated with stock ETFs.
Get broad exposure to bond markets around the globe
You can invest in just a few ETFs to complete the bond portion of your portfolio. Each of these ETFs includes a wide variety of bonds in a single, diversified investment.
Vanguard Total Bond Market ETF holds more than 8,300 domestic investment-grade bonds.
Vanguard Total International Bond ETF holds more than 4,500 bonds from both developed and emerging non-U.S. markets.
How to evaluate different bond ETFs
How much risk are you comfortable with?
Different types of bonds will expose you to different types and levels of risk. Knowing the general terms used to describe specific bond characteristics can help you assess how comfortable you are with the risks involved with investing.
For example, maturity helps gauge how much the price of a bond (or bond ETF) will go up or down when interest rates change. The general rule is to align the average maturity of a bond ETF with the length of time that you'll have your money invested in that ETF.
Do you want U.S. or international bonds?
Actually, investing in a combination of U.S. and international bonds can add another level of diversification to your portfolio. Consider splitting your bond allocation into about:
- 70% U.S. bond ETFs.
- 30% international bond ETFs.
Do you specifically want to keep pace with inflation?
Inflation-protected bond ETFs invest in government bonds that are routinely adjusted for inflation.
Ready to choose your bond ETFs?
Or search for a specific bond ETF by name or ticker symbol:
Represents a loan given by you—the bond's buyer—to a corporation or a local, state, or federal government—the bond's "issuer."
In exchange for your loan, the issuer agrees to pay you regular interest and eventually pay back the entire loan amount by a specific date.
Usually refers to a "common stock," which is an investment that represents part ownership in a corporation, like Apple, GE, or Facebook.
Each share of a stock is a proportional share in the corporation's assets and profits.
A strategy intended to lower your chances of losing money on your investments.
Diversification can be achieved in many ways, including spreading your investments across:
- Multiple asset classes, by buying a combination of cash, bonds, and stocks.
- Multiple holdings, by buying many bonds and stocks (which you can do through a single ETF) instead of just one or a few.
- Multiple geographic regions, by buying a combination of U.S. and international investments.
A single bond's maturity date represents the date that the company, municipality, or government that sold the bond (the "issuer") agrees to return the principle—or face value—to the buyer.
A bond fund's average maturity represents the average length of time until each bond in the fund reaches its specific maturity date. You'll usually see 3 general categories with increasingly longer average maturities:
- Short-term: less than 5 years.
- Intermediate-term: between 5 and 10 years.
- Long-term: more than 10 years.
The longer the maturity (for a single bond) or average maturity (for a bond fund), the more likely you'll see prices move up and down when interest rates change.
The main criteria for assessing the quality of a bond or bond fund.
Credit quality is usually determined by independent bond rating agencies, such as Moody's Investors Service and Standard & Poor's (S&P).
You'll typically see 2 general categories of credit quality ratings:
- Investment-grade: These include bonds and bond funds with Moody's ratings of Aaa, Aa, A, or Baa; or S&P ratings of AAA, AA, A, or BBB.
- Below-investment-grade: These include bonds and bond funds with Moody's ratings of Ba, B, Caa, Ca, or C; or S&P ratings of BB, B, CCC, CC, or D.
Bonds and bond funds rated Baa/BBB or lower are often referred to as "high yield" bonds because of the higher interest payments offered to investors who are willing to take the added risk of investing in lower-quality bonds. However, this has also earned them the nickname of "junk" bonds because of their higher risk of default.
When the company, municipality, or government that sold the bond (the "issuer") can't keep up with scheduled interest payments or return the full principal—or face value—of the bond to its buyer when the bond matures.