With the Federal Reserve keeping rates unchanged in its latest interest rate policy decision, it might be unclear what investors should do when it comes to interest rates in 2020 as 2019 winds down. However, if one were to follow the herd, then diving into bonds irrespective of what the Fed does in 2020 is the way to go.
Investors continue to pour capital into bond funds and 2020 could be another banner year for fixed income.
“Investors continue to pile into bond funds as 2019 winds down and as one of the biggest fund companies by assets under management, Vanguard bond funds have likely received much of investor’s savings,” a U.S. News & World Report article by Debbie Carlson said. “Refinitiv’s Lipper Weekly U.S. Fund Flows Report, dated on Dec. 4, showed net inflows of nearly $1.2 billion for all taxable bond funds, with corporate investment-grade bonds and money market funds seeing the biggest inflows.”
“The Federal Reserve has cut interest rates this year, prompting a general rethinking about the path of interest rates, experts say,” the article added. “That may be one reason why people are choosing to invest in mutual funds and exchange-traded funds such as Vanguard’s bond index funds and actively managed bonds funds.”
One fund to consider for broad bond exposure is the Vanguard Total Bond Market Index Fund ETF Shares (NasdaqGM: BND). BND seeks the performance of Bloomberg Barclays U.S. Aggregate Float Adjusted Index. Bloomberg Barclays U.S. Aggregate Float Adjusted Index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States-including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities-all with maturities of more than 1 year.
Another fund that’s ideal for core exposure is the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG). Since 2003, AGG has been the go-to fund for investors who want that core bond exposure, and with close to 20 years under its belt (not to mention $67 billion in assets under management), AGG is still a great option.
- AGG seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index.
- The index measures the performance of the total U.S. investment-grade bond market.
- The fund generally invests at least 90% of its net assets in component securities of its underlying index and in investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of its underlying index.
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