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7 Best Vanguard Bond Funds to Buy in 2021

When you think about investing, chances are what pops into your mind first is stocks. However, any well-balanced investment portfolio will include a good mix of both stocks and bonds.

While bonds and other fixed-income investments don’t tend to see the significant price growth sometimes seen in stocks, they’re also not subject to as much volatility. So, including bonds in your diversification strategy ultimately helps to lighten the blow when the overall stock market is trading in the red.

Although there are plenty of investment-grade funds to choose from on Wall Street, some of the most popular among individual investors are from Vanguard.

After all, Vanguard funds — be they exchange-traded funds (ETFs), mutual funds, or index funds — are known for low-costs, allowing investors to hold onto more of the profits their investment dollars generate for them.

But which are the best Vanguard bond funds?

Best Vanguard Bond Funds

As with any investment-grade fund, Vanguard bond funds aren’t all created equal. Each fund comes with its own expense ratio, investment strategy, and historic performance.

In addition, Morgan Stanley Capital International (MSCI) provides ratings for companies according to their resilience to environmental, social, and governance (ESG) risks. ESG ratings provide a way to measure the sustainability and social impact of the entities the fund invests in.

With Vanguard being such a massive fund manager, offering up a long list of bond funds, how do you go about choosing the best for your investment portfolio?

Here’s a list of the seven best Vanguard funds that provide diversified exposure to bonds:

1. Vanguard Total Bond Market ETF (BND)

The Vanguard Total Bond Market ETF was designed to provide highly diversified exposure to the U.S.-dollar-denominated bond market. However, the fund does not invest in inflation-protected bonds or tax-exempt bonds.

Due to the assets held in the fund, it is known for producing high levels of income compared to other bond funds. Moreover, because the fund invests in bonds, prices tend to rise and fall slowly, offering stability in your investment portfolio during bear markets and sudden downturns.

Key Stats

Not only does the fund come with industry-low costs and industry-leading gains, it comes with a strong ESG score, meaning that an investment in the fund may make an impact on causes you care about.

  • Asset Allocation: The vast majority of assets held in the fund are allocated to U.S. government bonds, representing more than 60% of holdings in the investment portfolio. The fund also invests in corporate bonds with credit ratings of BBB, A, AA, or AAA, with nearly half of its corporate bond holdings being rated BBB to maximize returns.
  • Expense Ratio: Vanguard has a track record of offering some of the lowest-cost funds on Wall Street. So, it should come as no surprise that BND comes with industry-low expenses of just 0.035%. According to ETF.com, the average bond ETF costs 0.35%, meaning this particular fund comes at one-tenth the average cost.
  • Dividend Yield: At present, the dividend yield on the fund is 2.58%. However, according to historical data, the fund’s yield is generally closer to 3%.
  • Historic Performance: Compared to other bond ETFs, this fund comes with an above-average return. Over the past year, the fund has grown by 1.4%. Over the past three and five years, the fund has generated gains of 5.35% and 3.52%, respectively.
  • Morningstar Rating: 3 out of 5 stars.
  • MSCI ESG Rating: The ESG rating on the fund is a 6.2 out of 10 according to ETF.com, suggesting this fund is in line or slightly above its peers in terms of sustainability.

Pro tip: Have you considered hiring a financial advisor but don’t want to pay the high fees? Enter Vanguard Personal Advisor Services. When you sign up you’ll work closely with an advisor to create a custom investment plan that can help you meet your financial goals.


2. Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)

As an Admiral Shares fund, the minimum investment requirement in this fund is $3,000. However, with a low expense ratio and industry-leading historic returns, it may be worth making the large initial investment.

The Vanguard Total Bond Market Index Fund Admiral Shares fund seeks to provide diversified exposure to the United States Market by investing in treasury bonds and mortgage-backed securities. The maturities on these investments range from short to intermediate and even long-term commitments.

With the fund being made up of investments across several segments, it was designed to be the core bond holding in your investment portfolio.

Key Stats

As is the case with just about any fund offered up by the firm, the VBTLX offers a compelling historic performance and comes with a very low expense ratio.

  • Asset Allocation: The vast majority of assets held by the fund are invested in treasury bonds. However, the fund also holds mortgage-backed securities and corporate bonds with a range of maturities.
  • Expense Ratio: With an annual cost of just 0.05%, the fund comes with some of the lowest costs on the market today.
  • Dividend Yield: The dividend yield on the fund is currently 2.18%. Historically, dividend yields have been from 2.18% to 2.59%.
  • Historic Performance: When it comes to bonds, the performance on the VBTLX has been impressive. Over the past year, investors have enjoyed growth of 1.34%. Throughout the past three and five years, returns have come in at 5.33% and 3.55%, respectively.
  • Morningstar Rating: 3 out of 5 stars.
  • MSCI ESG Rating: Not available.

3. Vanguard Long-Term Treasury ETF (VGLT)

The Vanguard Long-Term Treasury ETF was designed for one purpose: to give investors diversified exposure to U.S. Treasury bonds with long-term maturities.

As a result of its investments in the U.S. Treasury, the fund is known for coming with a sustainable yet high income level. While there are some intermediate-term treasury bonds held in the fund, the vast majority are long-term bonds, with the portfolio maintaining a dollar-weighted average maturity of 10 to 25 years, making it a great opportunity for those looking for long-term income investments.

Key Stats

As with all funds on this list, the VGLT comes with a highly competitive expense ratio and is known for producing compelling gains and income. Here are the key stats:

  • Asset Allocation: 100% of the assets held in the fund’s investment portfolio are U.S. Treasury bonds with maturities ranging from 10 years to 25 years.
  • Expense Ratio: The expenses on the fund come in at 0.05%, making it yet another fund with one of the lowest costs you’ll find.
  • Dividend Yield: The current dividend yield on the fund is 2.42%. As with most funds on this list, the historic dividend yield has been quite a bit higher, with yields dropping as interest rates dropped during the COVID-19 pandemic.
  • Historic Performance: The past year has been painful for investors in this fund, with losses of 6.35%, but the historic performance of the fund makes it well worth your attention. Over the past three and five years, returns have come in at 8.69% and 4.15%, respectively.
  • Morningstar Rating: 3 out of 5 stars.
  • MSCI ESG Rating: The ESG rating on the fund is 6.10 according to ETF.com, suggesting that the fund is an attractive option for impact investors.

4. Vanguard Intermediate-Term Corporate Bond ETF (VCIT)

The Vanguard Intermediate-Term Corporate Bond ETF was designed to provide exposure to the intermediate-term corporate bond market. The majority of holdings in the fund have terms ranging from five to 10 years, reducing the interest rate risk associated with longer-term bond investments.

Moreover, the fund invests primarily in high-quality, investment-grade corporate bonds. As a result, the fund provides moderate income and a high level of sustainability.

Key Stats

As a fund developed by Vanguard, this ETF comes with an industry-low expense ratio. However, low costs don’t mean you’ll have to give up performance.

  • Asset Allocation: All assets held in the fund’s portfolio are corporate bonds. The issuers of these bonds have credit ratings ranging from below BBB to AAA, with more than 50% of holdings in BBB-rated issuers and more than 39% in A-rated issuers. This strategy helps to increase income while reducing exposure to undue credit risk.
  • Expense Ratio: The costs associated with the fund come in at 0.05%, making it one of the most competitively priced funds on Wall Street.
  • Dividend Yield: The dividend yield on the fund clocks in at 3.02%, making it one of the best income generators on this list.
  • Historic Performance: Due to its compelling investment strategy, the historic performance of the fund is hard to beat among funds in its class. Over the past year, investors have enjoyed returns of 3.31%, with returns over the past three and five years coming in at 7.14% and 5.49%, respectively.
  • Morningstar Rating: 3 out of 5 stars.
  • MSCI ESG Rating: According to ETF.com, the ESG rating on the fund is 6.42, making it yet another strong option for those looking to make an environmental or social impact with their investing dollars.

5. Vanguard Tax-Exempt Bond ETF (VTEB)

Next up, the Vanguard Tax-Exempt Bond ETF was developed to track an underlying benchmark that tracks investment-grade municipal bonds in the United States.

Importantly, more than 80% of the fund’s assets are invested in securities that are considered tax-exempt, ultimately reducing that tax burden of your investment portfolio. The fund is designed for investors who are looking for exposure to tax-exempt income through their investment portfolio.

Key Stats

The VTEB is yet another fund with industry-low costs and a compelling historic performance. Here are the key stats:

  • Asset Allocation: The vast majority of holdings in the fund’s investment portfolio are municipal bonds that provide tax-exempt income. Moreover, credit ratings on bonds held in the portfolio range from BBB to AAA, with around 3% of holdings in the fund being investments in issuers that have not been rated. AA-rated issuers make up nearly 50% of the portfolio, with the next largest holdings being in AAA-rated issuers.
  • Expense Ratio: With an expense ratio of 0.06%, the fund comes with some of the highest costs on this list. Of course, that is still well below the industry average of 0.35% for bond ETFs.
  • Dividend Yield: The VTEB fund comes with a dividend yield of 2.14%. While it’s not the highest yield on this list, the vast majority of income generated by this fund comes with no tax burden.
  • Historic Performance: The fund is another top performer when it comes to funds focused on bond investments. In the past year, investors have enjoyed growth of 1.14%, with growth rates over the past three and five years coming in at 4.68% and 3.27%, respectively.
  • Morningstar Rating: 3 out of 5 stars.
  • MSCI ESG Rating: Not available.

6. Vanguard Mortgage-Backed Securities ETF (VMBS)

As its name suggests, the Vanguard Mortgage-Backed Securities ETF was designed to provide investors with diversified exposure to the U.S. mortgage-backed securities market.

The fund aims to provide a sustainable level of income while limiting exposure to the volatility associated with investing in stocks. Moreover, the fund works to provide dollar-weighted average maturities between three and 10 years, keeping interest rate risk levels lower than would be experienced with longer-term maturities.

Ultimately, investing in the fund provides exposure to some of the most successful government-sponsored mortgage companies in the United States.

Key Stats

Although average for Vanguard, the expense ratio of the fund is well below the average across the industry. Like other funds on this list, you won’t be giving up potential returns in exchange for low costs. It also has one of the best Morningstar ratings on the list. Here are the key stats:

  • Asset Allocation: 100% of the holdings in this investment portfolio are government-sponsored mortgage companies, with the vast majority being invested in bonds issued by Fannie Mae, Ginnie Mae, and Freddie Mac.
  • Expense Ratio: The costs associated with the VMBS clock in at 0.05%, well below the industry average.
  • Dividend Yield: Although it’s not the highest on this list, the dividend yield of 2.02% means that investors enjoy a decent level of income. Moreover, due to the assets held in the portfolio, this income is highly consistent.
  • Historic Performance: As with others on this list, the VMBS has a pretty strong track record in terms of performance. Over the past year, investors have experienced growth at a rate of 1.61%. Throughout the past three and five years, returns have come in at 4.03% and 2.48%, respectively.
  • Morningstar Rating: 4 out of 5 stars.
  • MSCI ESG Rating: Not available.

7. Vanguard Short-Term Corporate Bond ETF (VCSH)

Last, but definitely not least, the Vanguard Short-Term Corporate Bond ETF was designed to give investors exposure to high-end corporate bonds with a relatively short maturity.

With a dollar-weighted maturity of one to five years, this fund includes the shortest-term holdings compared to any other option on this list. Although shorter terms may cut into returns, they also lead to a reduction of exposure to interest-related risks.

Key Stats

Known for low expenses and strong returns, the VCSH has become a popular choice among investors. Here are the key stats:

  • Asset Allocation: As mentioned above, 100% of the assets in the investment portfolio are invested in short-term corporate bonds. The issuers of these bonds range in credit ratings from less than BBB to AAA, with 46.9% of its holdings in BBB-rated companies and 44.2% invested in A-rated companies.
  • Expense Ratio: Like the majority of options on this list, the VCSH comes with an expense ratio of 0.05%, a full 30 basis points below the industry average.
  • Dividend Yield: The fund offers a dividend yield of 2.15%, meaning investors can expect to generate meaningful income.
  • Historic Performance: The fund is known for producing relatively consistent returns, with gains coming in at 3.06% over the past year. Throughout the past three and five years, returns have come in at 4.48% and 3.37%.
  • Morningstar Rating: 5 out of 5 stars.
  • MSCI ESG Rating: With an ESG rating of 6.72 according to ETF.com, an investment in the fund represents a sustainable move, making it a great choice for impact investors.

Final Word

Investment-grade bonds are an important part of any investment portfolio. They provide a figurative cushion when bear markets set in. One of the best ways to gain diversified exposure to bonds is through bond funds.

As is the case with any investment, it’s important to do your research before risking your hard-earned money. In particular, pay close attention to expense ratios, dividend yields, and historic performance. If you’re interested in making an impact with your investments, you’ll also want to look into ESG data.

Nonetheless, with a small amount of research, investments in bonds can add the perfect balance to your portfolio.

Joshua Rodriguez
Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.

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