Long term bonds offer greater risk and the potential for greater reward. Here we’ll look at the best long term bond ETFs.
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Contents
Introduction – Why Long Term Bonds?
Long term bonds are more risky than shorter-term bonds due to their higher exposure to inflation, credit, and interest rate risk. This increased risk is compensated, though, through higher returns and a lower correlation to stocks.
Long-term bonds are particularly useful for portfolios with a long time horizon and/or a low allocation to bonds. Also remember that bonds – even long-term bonds – shouldn’t be feared just because interest rates are low. It’s usually sensible to have the first 10-20% of your bond holding in long-term bonds and to roughly match bond maturity to your investing horizon.
Below we’ll look at the best long term bond ETFs.
The 5 Best Long Term Bond ETFs
Below are the 5 best long term bond ETFs.
TLT – iShares 20+ Year Treasury Bond ETF
The iShares 20+ Year Treasury Bond ETF is the most popular long-term bond ETF, with over $18 billion in assets. This fund is focused on long-term treasury bonds, which offer a lower correlation to stocks than corporate bonds. The fund seeks to track the ICE U.S. Treasury 20+ Year Bond Index. This ETF has a weighted average maturity of 26 years and an expense ratio of 0.15%.
VGLT – Vanguard Long-Term Treasury ETF
A more affordable way to access long-term treasury bonds is with the Vanguard Long-Term Treasury ETF (VGLT). This ETF has an expense ratio of only 0.05%. The fund seeks to track the Bloomberg Barclays U.S. Long Treasury Bond Index.
EDV – Vanguard Extended Duration Treasury ETF
STRIPS are long-dated treasury bonds that “strip” the bonds’ coupon payments to increase the average duration. The Vanguard Extended Duration Treasury ETF (EDV) has an average duration of 24.6 years and an expense ratio of 0.07%. The fund seeks to track the Bloomberg Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index.
VCLT – Vanguard Long-Term Corporate Bond ETF
Investors seeking long term corporate bonds can use the Vanguard Long-Term Corporate Bond ETF (VCLT). This ETF tracks the Barclays U.S. 10+ Year Corporate Index. It has an expense ratio of 0.05% and a weighted average maturity of 23.9 years.
BLV – Vanguard Long-Term Bond ETF
Those seeking broader exposure across long-term, investment-grade treasury and corporate bonds can use the Vanguard Long-Term Bond ETF (BLV), which tracks the Bloomberg Barclays U.S. Long Government/Credit Float Adjusted Index. The fund has over $12 billion in assets, a weighted average maturity of 24.3 years, and an expense ratio of 0.05%.
Where To Buy These Long Term Bond ETFs
All the above long term bond ETFs are available at M1 Finance. M1 has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, intuitive pie visualization, and a sleek, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.
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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.
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Hi John, love your work.
Is EDV superior to TLT in a taxable portfolio, since it’s zero coupon and you won’t get hit by local/federal income tax on the ~2% yield that something like TLT has?
-Neil
Thanks, Neil! It’s intuitive to think so, but unfortunately Uncle Sam still comes after zero-coupon bonds by calculating the “phantom” income known as “imputed interest,” on which we still have to pay taxes.
Hey John. Loving the website.
I know that EDV has a longer time horizon than VGLT, but is also zero-coupon, so it functions slightly differently than the other treasury bonds. For an investor with a long time horizon (say 35 years) would it make sense to hold a little of each to counterbalance these forces? Given the variability of interest rates, does either fund have an advantage over the other?
Thanks! Not really different forces, just zero coupon and longer duration like you noted, so EDV is effectively 1.5x VGLT. No real advantage of one over the other; just dial in your duration based on time horizon. For some that may require a combination of different funds. Also depends on allocation obviously. I ranted a bit here recently about why we’d want longer bonds at lower allocations.