Short term bonds are great for retirees and risk-averse investors. Here we’ll look at the best short-term bond ETFs.
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Introduction – Why Short Term Bonds?
Short term bonds are less risky than longer-term bonds due to their lower exposure to inflation, credit, and interest rate risk. Short term bonds are popular among retirees and investors with a low risk tolerance, and are even considered a “cash equivalent” in some cases, offering capital preservation while providing income from interest payments. Warren Buffett himself wants 10% of his wife’s inheritance in short-term treasury bonds.
Below we’ll look at the best short term bond ETFs.
The 5 Best Short Term Bond ETFs
Below are the 5 best short term bond ETFs.
SHV – iShares Short Treasury Bond ETF
The iShares Short Treasury Bond ETF (SHV) holds bonds with maturities of 1 year or less, known as “T Bills.” Its average weighted maturity is 4.7 months. This ETF is an extremely popular cash equivalent, with over $20 billion in assets. The fund seeks to track the Barclays Capital U.S. Short Treasury Bond Index and has an expense ratio of 0.15%.
VGSH – Vanguard Short-Term Treasury ETF
The Vanguard Short-Term Treasury ETF (VGSH) seeks to track the Barclays Capital U.S. 1-3 Year Treasury Bond Index. It has an expense ratio of only 0.05% and a weighted average maturity is slightly longer at 2.0 years.
VCSH – Vanguard Short-Term Corporate Bond ETF
Investors seeking short term corporate bonds can use the Vanguard Intermediate-Term Treasury ETF (VCSH). Corporate bonds usually have higher interest payments than treasury bonds, and are thus popular among income investors. This ETF tracks the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index. It has an expense ratio of 0.05% and a weighted average maturity of 3 years.
SHM – SPDR Barclays Short Term Municipal Bond
Municipal bonds offer tax-free interest. Those seeking short-term municipal bonds can use the SPDR Barclays Short Term Municipal Bond (SHM). This ETF seeks to track the Barclays Capital Managed Money Municipal Short Term Index. It has over $4 billion in assets, a weighted average maturity of 2.9 years, and an expense ratio of 0.20%.
BSV – Vanguard Short-Term Bond ETF
Those seeking broader exposure across short-term bonds – investment-grade government, corporate, and agency – can use the Vanguard Short-Term Bond ETF (BSV), which tracks the Bloomberg Barclays U.S. 1–5 Year Government/Credit Float Adjusted Index. This ETF is exposed for about 65% treasury bonds. The fund has over $58 billion in assets, a weighted average maturity of 2.9 years, and an expense ratio of 0.05%.
Where To Buy These Short Term Bond ETFs
All the above short 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.
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.