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Vanguard bond funds

79% of our low-cost bond funds performed better than their peer-group averages over the past 10 years.*

Find income and stability with bond funds

Get higher potential for income

Bond mutual funds give your portfolio the opportunity to earn income, unlike money market funds (which focus on maintaining your cash) and stock funds (which aim for long-term growth).

Add stability to your portfolio

When included in a well-balanced portfolio, bond funds can help balance the risks associated with stock funds. Bond funds can also help you keep pace with inflation through inflation-protected bond funds. These funds, which invest in government bonds, are routinely adjusted for inflation.

Spread out your exposure to risk

By potentially holding hundreds—sometimes thousands—of bonds in a single fund, you get more diversification than you would buying individual bonds.

Get broad exposure to the bond markets

You can use just a few funds to complete the bond portion of your portfolio. Each of these index funds gives you access to a wide variety of bonds in a single, diversified fund.

  • Vanguard Total Bond Market Index Fund holds more than 5,000 domestic investment-grade bonds.
  • Vanguard Total International Bond Index Fund holds about 3,000 non-U.S. bonds.

How to choose a bond fund

There are a few questions to ask yourself while you're considering the right bond fund for your portfolio:

Am I investing outside of an IRA or other retirement account?

If you're in one of the highest tax brackets and investing outside of your retirement account, you may be able to reduce your tax exposure with a tax-exempt bond fund.

Cut your federal tax bill with a national tax-exempt fund. Get added state-tax savings if you live in:

  • California
  • Massachusetts
  • New Jersey
  • New York
  • Ohio
  • Pennsylvania

Do I want domestic or international bonds?

Investing in both U.S. and international bond funds can add another level of diversification to an already well-balanced portfolio.

How much risk am I comfortable with?

Knowing the general traits used to identify the different bonds within a bond fund can help you determine your overall tolerance for risk.

  • Average maturity. Bond funds come with short-, intermediate-, or long-term maturities. The longer the maturity, the more sensitive the fund is to changes in interest rates.
  • Credit quality. Bonds that are backed by the government or one of its agencies have the best "creditworthiness" and a lower chance of default than most corporate bonds. Corporate bonds with high credit quality are considered investment-grade bonds, and those below investment grade are considered high-yield ("junk") bonds.

Would I prefer index or active funds?

Do you feel more comfortable tracking the market, or would you rather try to beat it?

Index funds try to track the performance of a specific market benchmark—or index—as closely as possible. The fund manager buys all or a representative sample of the stocks or bonds included in the index.

Actively managed funds are steered by our expert portfolio managers who select specific securities for the fund. While this gives you the chance to beat the benchmark, any actively managed fund could just as easily miss the mark.

REFERENCE CONTENT

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Bond mutual funds

A bond mutual fund invests in a variety of individual bonds, each of which represents debt—an IOU—issued by a U.S. or international corporation, municipality, or government.

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Maturity/Maturity date

The date when the issuer of a money market instrument or bond agrees to repay the principal, or face value, to the buyer.

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Investment-grade bond

A bond whose credit quality is considered to be among the highest by independent bond-rating agencies.

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High-yield ("junk") bond

A bond with a credit rating of BBB/Baa or lower. Known as "high yield" because of the rewards offered to those who are willing to take on the additional risks of a lower-quality bond.

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Market benchmark

An unmanaged group of securities whose overall performance is used as a standard to measure investment performance.

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Money market fund

A mutual fund that seeks income, liquidity, and a stable share price by investing in very short-term investments. Money market funds are suitable for the cash reserves portion of a portfolio or for holdings you'll need soon.

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Portfolio

The sum total of all your investments.

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Diversification

The strategy of investing in multiple asset classes and among many securities in an attempt to lower overall investment risk.

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Stock fund

A mutual fund having holdings consisting mainly of stocks.

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Bond

A bond represents a loan made to a corporation or government in exchange for regular interest payments. The bond issuer agrees to pay back the loan by a specific date.

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Index fund

A type of fund that tries to track the performance of a particular market index (sometimes referred to as a "benchmark") by buying and holding all or representative sample of the securities in the index, in the same proportions as their weightings in the index.