Patience is a virtue, and that especially rings true when it comes to fixed income investing. In this tricky market environment where bonds are feeling the same downward pressure as stocks, the long-term horizon is where investors should focus.
While bonds have often served as the safe haven hedge when the stock market trends downward, they’re not immune to their own market doldrums.
“There’s kind of this false perception of: Bonds are bulletproof and can’t lose money,” says Matthew Benson, owner of Sonmore Financial in Chandler, Arizona.
“Nobody put bonds in their portfolio because they thought it would be the best performer,” Benson adds. “You’re not going to get the same 4% to 7% total return out of a bond fund that maybe you would have over the last 25 to 30 years. But the reason somebody moved to bonds in the first place is they wanted less volatility.”
3 ETFs for the Long-Term Horizon
For a long-term approach to bonds, Vanguard has three options to consider. For safe haven government debt exposure, there’s the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT).
The fund seeks to track the performance of a market-weighted Treasury index with a long-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Long Treasury Bond Index, which includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities greater than 10 years.
For more yield, investors can opt for corporate bonds via the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT). As per the fund description, VCLT seeks to track the performance of a market-weighted corporate bond index with a long-term dollar-weighted average maturity.
Furthermore, the fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. 10+ Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities greater than 10 years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.
For an all-inclusive option, investors can consider the Vanguard Long-Term Bond Index Fund ETF Shares (BLV). BLV seeks to track the performance of the Bloomberg U.S. Long Government/Credit Float Adjusted Index, which includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds with maturities of greater than ten years and are publicly issued.
As such, BLV can draw from various options when it comes to bond investments. As mentioned, the common denominator is that the fund sticks to a higher duration with debt holdings that exceed a decade.
For more news, information, and strategy, visit the Fixed Income Channel.