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 protecting 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.
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:
- New Jersey
- New York
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.
- 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.
Do I want to keep pace with inflation?
Inflation-protected bond funds invest in government bonds and are routinely adjusted for inflation.
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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.
The date when the issuer of a money market instrument or bond agrees to repay the principal, or face value, to the buyer.
A bond whose credit quality is considered to be among the highest by independent bond-rating agencies.
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.
An unmanaged group of securities whose overall performance is used as a standard to measure investment performance.