Get Just Enough Yield Without Too Much Rate Risk With VGIT

Fixed income investors who want more yield without the interest rate risk associated the riskier bonds can opt for the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT).

VGIT straddles the line between obtaining yield and limiting duration. It’s an ideal option for bond investors who want more than what a short-duration bond ETF can offer in terms of yield, but not the rate risk that goes with stepping out further into the yield curve.

For the risk-averse, VGIT gives investors exposure to safer debt issues with Treasury notes. Per the fund description, VGIT seeks to track the performance of a market-weighted Treasury index with an intermediate-term dollar-weighted average maturity.

The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Treasury 3-10 Year Bond Index. This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between three and 10 years.

“This ETF offers exposure to intermediate term government bonds, focusing on Treasuries that mature in three to ten years,” an ETF Database analysis said. “As such, interest rate exposure for this product will be moderate; VGLT offers exposure to longer-dated Treasuries while VGSH is an option for those looking to focus on the short end of the maturity curve.”

Furthermore, cost conscious investors will like the 0.05% expense ratio.

“Like most Vanguard ETFs, VGIT is among the cheapest options available; commission free trading in Vanguard accounts may increase the cost appeal to those keeping an eye on fees,” the analysis added.

Don’t Mind the Rate Risk and Longer Duration?

Investors willing to accept more rate risk and longer duration for more yield can opt for the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT). Like VGIT, its expense ratio is also a paltry 0.05%.

VGLT 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.

This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) 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.

VGLT:

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