Bond ETFs offer lower-risk returns as well as a source of income. Bonds are purchased for a variety of reasons. They're popular because they're less risky than stocks and frequently provide a stream of income in the form of interest payments. Bond exchange-traded funds (ETFs) make it simple to invest in a large number of bonds at once, allowing you to build a diversified portfolio that reduces the risk of a single bond issuer defaults. If you're seeing forward to investing in a bond ETF in 2022, these are the best to consider (in no particular order). When compiling this list, the minimum investment required, the expense ratio and other fees charged by the fund, as well as the fund's historical returns, trade volume, and dividends, were all considered.
| ETF Name | AUM (as of Dec. 15, 2021) | Expense Ratio | Inception Date |
| Vanguard Total Bond Market ETF | $317.1 billion | 0.035% | April 3, 2007 |
| SPDR SSGA Ultra Short Term Bond ETF | $438.3 million | 0.20% | Oct. 9, 2013 |
| Vanguard Short-Term Inflation-Protected Securities ETF | $58.2 billion | 0.05% | Oct. 12, 2012 |
| Vanguard Mortgage-Backed Securities ETF | $16.9 billion | 0.04% | Nov. 19, 2009 |
| iShares National Muni Bond ETF | $24.5 billion | 0.07% | Sept. 7, 2007 |
| Vanguard Intermediate-Term Corporate Bond ETF | $49.4 billion | 0.04% | Nov. 19, 2009 |
| Vanguard Total International Bond ETF | $119.2 billion | 0.08% | May 31, 2013 |
| VanEck EM High Yield Bond ETF | $1.3 billion | 0.40% | May 8, 2012 |
| SPDR Portfolio High Yield Bond ETF | $564.5 million | 0.10% | June 18, 2012 |
Vanguard Total Bond Market ETF 3-year return (as of December 15, 2021): 5.41 percent Multi-Sector Bonds: Vanguard Total Bond Market ETF 3-year return (as of December 15, 2021): 5.41 percent
0.035 percent expense ratio $317.1 billion in assets under management (AUM) as of December 15, 2021 The company was founded on April 3, 2007. The Vanguard Total Bond Market ETF is a bond investor's all-in-one ETF. It invests in "taxable, investment-grade bonds" denominated in U.S. dollars of all kinds. It stays away from inflation-protected and tax-free bonds. Note: That "investment-grade" usually refers to bonds with a rating of BBB or higher (or equivalent) from independent rating agencies. It means the fund exposes you to a wide range of government, high-grade corporate, and other bond types. It is one of the most diversified bond ETFs available If you've been looking for a single ETF to cover the bond portion of your portfolio, this is the one to go with. Liquidity will not be an issue for this fund, which has more than $317 billion in assets. It's also extremely affordable, with an expense ratio of just 0.035 percent, or 35 cents for every $1,000 invested.Short-Term Bonds: SPDR SSGA Ultra Short Term Bond ETF has a 3-year return of 1.68 percent (as of December 15, 2021)
0.20 percent expense ratio $438.3 million in assets under management (AUM) as of December 15, 2021 Date of Inception: October 9, 2013 Interest rate risk is one of the most common types of risk bond investors face. Bond values tend to fall as interest rates rise because investors can buy newer bonds with better rates. A short-term bond fund, such as the SPDR SSGA Ultra Short Term Bond ETF mitigates this risk by only investing in bonds with very short maturities. The interest rate on the bonds will be lower, and thus the return, but this will reduce the risk of losing money in a rising rate environment. This fund has only $438 million in assets under management, making it the smallest ETF on this list, but that should be enough to keep investors afloat. The fund is also reasonably priced, with a 0.20 percent expense ratio, or $2 per $1,000 invested.Vanguard Short-Term Inflation-Protected Securities ETF: Inflation-Protected Bonds
Return on investment over three years (as of December 15, 2021): 4.56 percent 0.05 percent expense ratio Assets under management (AUM): $58.2 billion as of December 15, 2021. Date of Inception: October 12, 2012 Bond investors are also exposed to the risk of inflation. If inflation rises, the interest you incur may not be enough to maintain the purchasing power of your investment, resulting in a loss of value overall. Bonds that are inflation-protected have a mechanism that increases the interest rate if inflation rises. This fund primarily invests in five-year or shorter U.S. government inflation-protected bonds. It yields a reasonable rate of return while also providing additional protection against inflation. The fund is extremely liquid, with more than $58 billion in assets. This fund is also very inexpensive to invest in, with an expense ratio of 0.05 percent, or 50 cents for every $1,000 invested.Mortgage-Backed Securities: Vanguard Mortgage-Backed Securities ETF
Return on investment over three years: 3.68 percent (as of December 15, 2021). 0.04 percent Expense Ratio $16.9 billion in assets under management as of December 15, 2021 November 19, 2009, was the first day of the program. MBSs (mortgage-backed securities) are bonds that are backed by real estate loans such as mortgages. These securities are popular because they frequently pay monthly interest rather than semiannually. The Vanguard Mortgage-Backed Securities ETF invests in mortgage-backed securities (MBS) backed by government-sponsored enterprises such as Ginnie Mae, Fannie Mae, and Freddie Mac. The fund's MBS have maturities ranging from three to ten years, giving them a moderate level of interest-rate risk. The fund's assets total nearly $17 billion, so investors won't need to be concerned about liquidity. The expense ratio is quite low at 0.04 percent, or 40 cents for every $1,000 invested.Municipal Bonds: iShares National Muni Bond ETF
Return on investment over three years (as of December 15, 2021): 4.71 percent Cost-to-income ratio: 0.07 percent $24.5 billion in assets under management (AUM) as of December 15, 2021. September 7, 2007 State and local governments are the issuers of municipal bonds. A city, for example, might issue a municipal bond to fund infrastructure upgrades or other projects. Municipal bonds have the advantage of being tax-free for investors, making them a popular choice for those attempting to lessen the amount of money they have to pay in taxes. The iShares National Muni Bond ETF invests in over 2,000 municipal bonds issued by state and local governments around the United States to provide investors with tax-free income. The fund has a market capitalization of more than $24 billion, so investors should have no trouble buying or selling shares when they want. With an expense ratio of 0.07 percent or 70 cents for every $1,000 invested, it's also a low-cost investment.Corporate Bonds: Vanguard Intermediate-Term Corporate Bond ETF
Return on investment over three years (as of December 15, 2021): 7.44 percent 0.04 percent expense ratio Assets under management (AUM): $49.4 billion as of December 15, 2021. Date of Inception: November 19, 2009 The Intermediate-Term Corporate Bond ETF, managed by Vanguard, invests in highly rated corporate bonds with maturities of five to ten years. It allows the fund to generate a reasonable level of income while remaining risk-adequate. The fund's assets total nearly $50 billion, making it extremely liquid. It has a 0.04 percent expense ratio, which is very low, which translates to 40 cents per $1,000 invested.International Bonds: Vanguard Total International Bond ETF
Return on investment over three years (as of December 15, 2021): 4.04 percent 0.08 percent expense ratio $119.2 billion in assets under management (AUM) as of December 15, 2021 May 31, 2013, was the first day of operation. Bonds are issued by governments and other organizations all over the world. The Vanguard Total International Bond ETF is a multi-asset fund that allows you to invest in bonds issued by countries other than the United States. This ETF invests in high-quality bonds from Europe and the Pacific. Its exposure to emerging markets and other regions, such as the Middle East, is limited. Most of the bonds in its portfolio are rated A or higher, indicating a low risk of default. The fund is large enough that investors will not have trouble buying or selling shares, with nearly $120 billion in assets. It's also a bargain with an expense ratio of 0.08 percent or 80 cents for every $1,000 invested.VanEck EM High Yield Bond ETF invests in emerging markets
Return over three years: 5.52 percent (as of December 15, 2021) 0.40 percent Expense Ratio $1.3 billion in assets under management as of December 15, 2021 May 8, 2012, was the start of the project. If you would like to invest in international bonds that focus on emerging markets rather than developed markets, the VanEck EM High Yield Bond ETF is a good option. Emerging-market bonds have lower ratings than developed-market bonds, but they pay higher interest rates. This fund primarily held B.B. and B-rated bonds. With only $1.3 billion in assets, this is one of the more modest funds on our list. That should, however, be sufficient to ensure liquidity for investors buying and selling shares. It's also one of the priciest funds, but it's still a bargain with an expense ratio of 0.40 percent. It works out to be $4 for every $1,000 invested.SPDR Portfolio High Yield Bond ETF (Junk Bonds)
Return on investment over three years (as of December 15, 2021): 7.71 percent 0.10 percent expense ratio $564.5 million in assets under management (AUM) as of December 15, 2021 Date of Inception: June 18, 2012 One of the disadvantages of highly rated bonds is that they typically pay low-interest rates. Some bond investors prefer to take on a little more risk in exchange for higher bond interest rates. The SPDR Portfolio High Yield Bond ETF invests in junk bonds or those with a credit rating of less than BBB. In exchange for a higher level of default risk, these bonds tend to offer higher overall returns. The majority of this ETF's holdings are B.B. bonds, with some B, CCC, and lower-rated bonds thrown in for good measure. It is the second-smallest fund on our list, with $564 million in assets, but it's still big enough to keep investors' money flowing. It's also a low-cost option with an expense ratio of 0.10 percent, or $1 for every $1,000 invested.Bond ETFs: Advantages and Disadvantages
Pros
- Stock ETFs carry less risk.
- Investors will be able to earn money.
- Variation is simple.
Cons
- Lower returns than stock ETFs
- Risks associated with interest rates
Explained Advantages
Less risky than stock ETFs: Bonds are popular among investors because, when compared to stocks, they offer lower volatility and risk. Provide investors with a source of income:<span style="font-weight: 400;"> Bonds pay interest on a regular basis, and bond ETFs frequently pass that income on to investors, making bond ETFs a good option for income investors. ETFs make it simple for investors to invest in hundreds or thousands of securities at once, making the process of constructing a diversified portfolio much easier.The Drawbacks are Expounded
Returns are lower than stock ETFs: Bonds and bond ETFs typically offer lower long-term returns than stocks in exchange for their lower risk. Interest-rate risk: Bond and bond ETFs perform poorly when interest rates rise. Many investors believe that interest rates will rise in the current low-rate environment, posing a risk to bond investors.Performance Trends in the Past
Since 1926, a portfolio fully invested in fixed-income securities such as bonds has returned an average of 5.33 percent, compared to a 100% equity portfolio's return of 10.29 percent. Bonds have, however, performed admirably in recent years despite low-interest rates. With the exception of short-term bonds, the majority of the funds on this list have returned over 4%. Given today's low-rate environment, the lower-than-historical-average returns are to be expected.Is it Time for Me to Invest in a Bond ETF?
Bond ETFs are a good option for investors looking to diversify their portfolios by including fixed-income investments alongside their equity holdings. They're also beneficial to investors who want to earn money from their investments. A bond-heavy portfolio is likely not a good choice for you if you're looking for long-term growth, are comfortable with some volatility, and want higher returns.Final Thoughts
Bond ETFs are a way for investors to reduce risk and volatility in their portfolios while also generating income. There are numerous bond types to choose from, each with its own set of characteristics. If you're looking to diversify your bond holdings, these nine funds are among the best options.Most Commonly Asked Questions
What are bond exchange-traded funds (ETFs)?
Bond ETFs are exchange-traded funds that invest in government, corporate, and other fixed income securities. They make it easier to invest in a large number of bonds at once. As a result, you'll have a more diversified portfolio and lower your risk of bond issuer defaults.I want to invest in bond ETFs, but I'm not sure how to go about it.
Your brokerage account can be used to invest in bond ETFs. It's simple to set up an account, and it's similar to opening a bank account. Many brokers have their own bond ETFs, which may influence your decision about which broker to use.The best time to invest in bond ETFs?
It's difficult to know when to invest in anything, including bond ETFs. In the short run, investing can be risky. Make sure you have a long-term strategy for dealing with volatility and that you're willing to take the risk. We do not provide tax, investment, or financial services and advice. The information is being provided without taking into account any specific investor's investment objectives, risk tolerance, or financial circumstances and may not be suitable for all investors. Past performance does not guarantee future outcomes. Investing entails risk, which includes the potential for financial loss.