Bond ETFs for income | Vanguard
ETFs

Vanguard bond ETFs

Choose from a wide variety of short-, intermediate-, and long-term bond ETFs.

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Find income & stability with a bond ETF

Stock

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.

Bond

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.

Get higher potential for income

Bond ETFs (exchange-traded funds) give your portfolio the opportunity to earn income from interest payments—unlike stock ETFs, which aim for long-term growth (although some pay dividends).

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.

BND
Vanguard Total Bond Market ETF

Vanguard Total Bond Market ETF holds more than 8,300 domestic investment-grade bonds.

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BNDX
Vanguard Total International Bond ETF

Vanguard Total International Bond ETF holds more than 4,500 bonds from both developed and emerging non-U.S. markets.

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Diversification

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.

Protect yourself through diversification

How to evaluate different bond ETFs

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.

Credit quality helps gauge the likelihood that the bond will default. Obviously, the better the credit quality, the less risk there is to your investment.

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.

Inflation-protected bond ETFs invest in government bonds that are routinely adjusted for inflation.

Maturity/Average maturity

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.

Credit quality

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.

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.

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International ETFs

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For more information about Vanguard mutual funds and ETFs, visit Vanguard mutual fund prospectuses or Vanguard ETF prospectuses to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free) or through another broker (which may charge commissions). See the Vanguard Brokerage Services commission and fee schedules for limits. Vanguard ETF Shares are not redeemable directly with the issuing fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

Bond ETFs are subject to interest rate risk, which is the chance that bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline. Investments in bonds issued by non-U.S. companies are subject to risks including country/regional risk, which is the chance that political upheaval, financial troubles, or natural disasters will adversely affect the value of securities issued by companies in foreign countries or regions; and currency risk, which is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates. These risks are especially high in emerging markets.