A Cost-Effective Way to Broad Bond Exposure

Investors are increasingly looking to cheap options, no matter the investment environment. Cheap index-based ETFs have been the go-to choice among long-term investors through rain or shine. Despite increased anxiety through volatile periods like the financial downturn, many long-term investors did not engage in panicked trading but opted stay the course.

One of the least expensive (and largest) fixed income ETFs on the market today is the Vanguard Total Bond Market ETF (NYSEArca: BND). BND has an annual fee of just 0.05%, or $5 on a $10,000 investment, making it less expensive than 93% of rival funds.

Among the forerunners of cheap ETF options, Vanguard Group has been among the beneficiaries of the recent surge in popularity of low-cost investment options and is now the second largest ETF provider in the U.S. Vanguard has over 70 U.S.-listed ETFs with $784.8 billion in assets under management and an average 0.11% expense ratio.

BND “tracks the market-cap-weighted Bloomberg Barclays U.S. Aggregate Bond Index, which includes investment-grade, U.S.-dollar-denominated bonds with at least one year until maturity,” according to Morningstar. “The portfolio currently consists of roughly 40% Treasury bonds, 20% government-guaranteed mortgage-backed securities, and 40% investment-grade corporate bonds. Accordingly, it carries low credit risk, which can limit its return potential. However, its cost advantage partially offsets this drawback.”

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