Bond funds allow investors to get bond exposure without having to buy individual bonds. Here we’ll look at the best bond funds to diversify your portfolio.
Disclosure: Some of the links on this page are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. Read more here.
Contents
Introduction
Bonds are usually used as a diversifier, held alongside stocks to reduce portfolio volatility and risk. They can also provide steady, predictable income for retirees. I delved into bonds more comprehensively here.
There are many different types of bonds with different characteristics and purposes, including government bonds, corporate bonds, treasury-linked bonds, municipal bonds, and more.
Let’s jump into the 13 best bond funds.
The 13 Best Bond Funds
The most popular bond funds typically come from iShares, Vanguard, and Schwab.
AGG – iShares Core U.S. Aggregate Bond ETF
The iShares Core U.S. Aggregate Bond ETF (AGG) is one of the most popular bond funds out there, providing broad exposure to the total U.S. bond market via the Bloomberg Barclays US Aggregate Bond Index, which includes government, mortgage, and corporate bonds. This ETF has a low expense ratio of 0.04%.
GOVT – iShares U.S. Treasury Bond ETF
Some investors may opt for solely using treasury bonds and avoiding corporate bonds. The iShares U.S. Treasury Bond ETF (GOVT) provides easy access to the total U.S. treasury bond market via the ICE U.S. Treasury Core Bond Index. This ETF has an expense ratio of 0.05%.
IAGG – iShares Core International Aggregate Bond ETF
IAGG is simply the international (ex-US) version of AGG above. The iShares Core International Aggregate Bond ETF provides access to ex-U.S. investment-grade bonds via the Bloomberg Barclays Global Aggregate ex USD 10% Issuer Capped (Hedged) Index. This ETF has an expense ratio of 0.08%.
IGOV – iShares International Treasury Bond ETF
Similar to GOVT above, we can specifically target international (ex-US) treasury bonds, avoiding corporate bonds, using the iShares International Treasury Bond ETF (IGOV). This ETF seeks to track the FTSE World Government Bond Index – Developed Markets Capped. It has an expense ratio of 0.35%.
EMB – iShares J.P. Morgan USD Emerging Markets Bond ETF
Sovereign debt from Emerging Markets may offer a geographical diversification benefit for the fixed income side, providing more of a credit risk premium than that of developed countries. The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) seeks to track the J.P. Morgan EMBI Global Core Index and has an expense ratio of 0.39%.
HYG – iShares iBoxx $ High Yield Corporate Bond ETF
Those seeking high yield bonds – usually to use bond interest as income – may enjoy high-yield corporate bonds from the iShares iBoxx $ High Yield Corporate Bond ETF. This fund seeks to track the Markit iBoxx USD Liquid High Yield Index and has an expense ratio of 0.49%.
TLT – iShares 20+ Year Treasury Bond ETF
Investors with a longer time horizon will likely want to utilize long-term treasury bonds. The iShares 20+ Year Treasury Bond ETF (TLT) is the most popular long-term treasury fund out there. It seeks to track the ICE U.S. Treasury 20+ Year Bond Index and has an expense ratio of 0.15%.
SHY – iShares 1-3 Year Treasury Bond ETF
Those with a short time horizon or investors looking for a cash equivalent will want short-term bonds. The iShares 1-3 Year Treasury Bond ETF (SHY) seeks to track the ICE U.S. Treasury 1-3 Year Bond Index and has an expense ratio of 0.15%.
BIV – Vanguard Intermediate-Term Bond ETF
BIV from Vanguard provides exposure to the entire intermediate-term investment-grade bond segment, covering both government and corporate debt. It tracks the Bloomberg Barclays U.S. 5-10 Year Government/Credit Float Adjusted Index and has an expense ratio of 0.05%.
AGZ – iShares Agency Bond ETF
Agency bonds are bonds issued by government-sponsored agencies such as Fannie Mae and Freddie Mac. The iShares Agency Bond ETF (AGZ) seeks to track the Bloomberg Barclays U.S. Agency Bond Index and has an expense ratio of 0.20%.
JPST – JPMorgan Ultra-Short Income ETF
JPMorgan has a solid reputation of cash management. Investors flocked to the recent launch of their actively managed short-term bond fund JPST – the JPMorgan Ultra-Short Income ETF. The fund has outperformed other ultra-short-term bond fund competitors since inception. It has a relatively low fee – considering it’s actively managed – of 0.18%.
SCHP – Schwab U.S. TIPS ETF
TIPS are bonds whose face value rises with inflation, providing inflation “protection.” The Schwab U.S. TIPS ETF (SCHP) seeks to track the Bloomberg Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L) and has an expense ratio of 0.05%.
MUB – iShares National Muni Bond ETF
High income earners may desire to use municipal bonds in taxable brokerage accounts to take advantage of their preferential tax treatment. Interest from municipal bonds, or munis for short, is tax-free at the federal level. The iShares National Muni Bond ETF (MUB) seeks to track the S&P National AMT-Free Municipal Bond Index and has an expense ratio of 0.07%.
Where to Buy These Bond ETFs
All these Vanguard bond ETFs should be available at any major broker. My choice is M1 Finance. The broker has zero transaction fees and zero account fees, and offers fractional shares, dynamic rebalancing, and a modern, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.
Disclosures: I am long SCHP.
Interested in more Lazy Portfolios? See the full list here.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.
What are your thoughts about actively managed bonds – does it make sense to consider actively managed bonds, and how do they stack up against these listed above?
Thanks!
Not a fan.
Any thoughts on VTEB vs MUB, VWOB vs EMB, BND vs AGG, or BNDX vs IAGG?
Although there are some significant AUM differences for each “vs” pair above, average spreads (by percentage) are nominal. Similar scenario with expense ratios.
Chris, I’d likely simply take the one in each pair with greater liquidity and lower fee, though they could be used for tax loss harvesting purposes.
Is GOVT pure treasuries, or does it also contain agency debt?
Just treasuries.