1 Big Bond ETF Any Investor Can Buy and Hold Forever

June 16, 2023

Singapore Savings Bonds

For global investors, we have seen a strong rally in US stock markets so far in 2023. This has been led by tech stocks (along with the hype of AI) and hopes that the Fed’s interest rate hikes have now peaked.

The S&P 500 Index is up nearly 16% year-to-date and it’s been notching up strong gains in the past few weeks.

However, no matter what the stock market is doing (up or down), we should ensure we have a solid and responsible long-term investing plan in place.

Part of that is asset allocation and besides owning stocks or broad stock market exchange-traded funds (ETFs), we should also own bonds.

That’s because bonds are a natural hedge to stocks and are part of a balanced portfolio for long-term investors.

Naturally, the easiest – and most liquid – way to own bonds is by buying a bond ETF. So, here’s one large bond ETF that all long-term investors can buy and hold forever as part of their portfolio.

Vanguard Total Bond Market ETF: Accessing investment-grade US bonds

Given the US is by far the world’s largest bond market, it makes sense for investors to have exposure to it.

And this is easily achieved by buying the overall US bond market via an ETF, which is what the Vanguard Total Bond Market ETF (NYSE: BND) gives you.

The ETF tracks the overall US market-weighted bond index and gives investors exposure to investment-grade, US-dollar denominated bonds.

It has an annual expense ratio of just 0.03% (matching the largest US stock ETFs) and is supremely well diversified.

The ETF has nearly 10,500 various bonds within it and no one bond position makes up more than 0.03% of the total value.

It’s also huge, with assets under management (AUM) of US$295 billion – highlighting its appeal as the “go-to” ETF for broad-based bond exposure.

Monthly distributions and mainly short-term bonds

But what about the duration of the bonds? Thankfully, there’s a mix within the ETF between short-, medium- and long-term bonds.

Most of the exposure is actually at the shorter end of the yield curve, with just over 40% of the bonds maturing within 5 years.

Meanwhile, the exposure of bonds with a maturity of 5-10 years is 31% while those with maturities of 10 years and above make up the remainder of the ETF.

On the credit quality of the ETF, US government bonds make up around two-thirds of the ETF while AAA and AA issuers make up 6.50%.

Issuers with A and BBB ratings make up the remainder of the ETF.

One thing to note about the Vanguard Total Bond Market ETF is that it makes distributions to shareholders monthly.

Based on the past-30-days yield to maturity (YTM), the ETF is giving investors a yield of 4.3%. So far in 2023, the bond ETF’s price has seen a positive return of 2.7%.

Look to bonds for diversification and reduced volatility

For younger investors, they should have the majority of their investment holdings in stocks given the higher long-term returns associated with the asset class.

However, all investors should also have an allocation to bonds within their long-term investment plan.

That’s mainly because it can provide some diversification to portfolios (although 2022 was a rare exception as both stocks and bonds fell at the same time).

Generally, though, when stocks fall and recession hits, bonds tend to outperform.

For any long-term investor that wants a low cost and easy way to access the world’s largest bond market – in the investment grade space – then the Vanguard Total Bond Market ETF is a great option to buy and hold forever.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.


Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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