There are many different types of bonds that investors can purchase to diversify their portfolios. Some of the most common include corporate bonds, municipal bonds, and treasury bonds.
If you’re being torn between these different types of bonds, there is a way to solve this problem. And that is through a total bond ETF.
A total bond market index fund like FNBD and BND gives investors easy access to a mix of all three types of bonds in a single investment vehicle. This means that the diversification provided could lead to better performance than other bond investments.
- FBND is the Total Bond ETF from Fidelity, while BND is the Total Bond Market Index Fund ETF from Vanguard.
- Thanks to its lower expense ratio, BND charges fewer fees to investors than FBND (0.04% vs. 0.36%, respectively).
- BND has more assets (83.31 billion) under management than FBND (2.26 billion).
- FBND’s top 10 holdings make up 39.27% of its portfolio. BND, on the other hand, is more diversified, with only 4.96% of its assets in the top 10 holdings.
- The Vanguard Total Bond ETF seeks to track the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, while the Fidelity Total Bond ETF uses the Bloomberg Barclays U.S. Universal Bond Index for asset allocations.
- Both FBND and BND hold a variety of debt instruments, with Government debt bonds being the largest (over 40%).
- The Fidelity and Vanguard Total Bond ETFs mainly invest in bonds with maturities of more than 1 year.
|Funds||Fidelity® Total Bond ETF||Vanguard Total Bond Market Index Fund ETF Shares|
BND is better than FBND for the following reasons:
- BND has a much lower expense ratio than FBND.
- The Vanguard Total Bond ETF is significantly diversified. BND invests at least 80% of its assets in “government, corporate, and international dollar-denominated bonds,” mortgage-backed and asset-backed securities.
BND should be in everyone’s portfolio because it holds 18320 different Treasury Bonds globally. So it’s like owning the world economy in an ETF. And it has very low volatility.
If you’re under 50, I wouldn’t bother with bonds. The yields are so low, it’s pointless. Most bonds are lower than inflation, which means you’ll actually lose money.
Stay with equities.
This is why I invested in utilities. It’s treated like bonds. Low risk & slow stock appreciation but pays high dividends.
Money market accounts have similar yields to short-term government bonds (under 0.01%). Stick with cash: same interest, no liquidity or interest rate risk.
A total bond index should suffice. FXNAX is one example. People advise against bonds while equity markets are performing. You have to consider times when it is not (e.g., March 2020). If you do not have at least a year’s worth of cash reserves, you should not be all-in on stocks within investment/retirement accounts.
Bonds and Money Market ETF/Mutual Funds are good to preserve money for the short term, but many long-term treasury funds are slowly being devalued due to the Fed.
Nonetheless: 20+ Year Treasury Bond Fund (EDV), 10-20 Year Treasury Bond Fund (TLH), 2-10 Year Treasury Bond Fund (VGIT), >2 Year Treasury Fund (AGZ).