3 US bond funds to buy for yield and stability in 2022


Source: JJ Gouin / Shutterstock.com

So far, 2022 has been a frantic race for stocks. And this is becoming an interesting year for bond funds.

Barely two months of the year and the reference S&P500 the index is down 9% since the start of the year, while Dow Jones Industrial Average decreased by 7% and loaded technology Nasdaq Compound fell 14%. All three indices are in correction territory defined as a decline of 10% or more at various times since the beginning of January.

Many well-known actions such as Metaplatforms (NASDAQ:Facebook) and PayPal (NASDAQ:PYPL) have fallen more than 35% in the past eight weeks. So what should an investor do during a period of volatility like the one we are currently experiencing?

Buy bonds, of course.

Debt instruments used by companies and governments to finance projects and operations are generally more stable and predictable than equities. And bond yields, or the return provided to investors, have risen this year, with the yield on 10-year US Treasuries approaching 2%.

As stock markets continue to turn, here are three US bond funds to buy for performance and stability.

  • Vanguard Total Bond Market ETF (NASDAQ:BND)
  • Fidelity Investment Grade Bond Fund (MUTF:FBNDX)
  • Schwab Tax-Free Bond Fund (MUTF:SWNTX)

Bond funds to buy: Vanguard Total Bond Market ETF (BND)

cutting-edge website displayed on a mobile phone screen depicting cutting-edge ETFs

Source: Shutterstock

Vanguard is one of the leaders in the investment industry, offering a diverse range of products and some of the lowest fees on the market. The company’s Total Bond Market ETF is an exchange-traded fund that provides investors with broad exposure to taxable investment-grade U.S. dollar-denominated bonds.

His holdings are 66% US government bonds, with the majority having maturities of one to five years. The BND fund offers an average return of 2.16% and has provided investors with an average rate of return of 3.84% since its inception in 2007.

As is generally the case with most Vanguard funds, the Total Bond Market ETF has an extremely low expense ratio of just 0.035% and pays a quarterly dividend of 13 cents per share. The fund, which holds several mortgage-backed government bonds, currently has $310 billion in assets under management and is the highest rated among ETFs.

Fidelity Investment Grade Bond Fund (FBNDX)

Loyalty sign

Source: Jonathan Weiss/Shutterstock.com

It is a large, actively managed bond fund with $10 billion in assets under management. Since it is actively managed, investors will pay a higher expense ratio of 0.45%.

The FBNDX fund currently yields 1.40% and holds mostly AAA-rated US Treasuries along with a handful of foreign government bonds, including Canadian ones. The fund has provided investors with an average rate of return of 3.19% since its inception in 2018.

The FBNDX fund also pays a distribution on a monthly basis rather than quarterly or annually. The monthly dividend payment averages about 2 cents per share. Not spectacular, but for long-term investors, these distributions can add up over time.

Investors should also be aware that this actively managed fund requires a minimum initial investment of $500. However, after that, investors can make additional purchases in the fund with as little as $25.

Bond funds to buy: Schwab Tax-Free Bond Fund (SWNTX)

charles schwab poster outside a building

Source: Isabelle O’Hara / Shutterstock.com

The Tax-Free Bond Fund is more expensive at an expense ratio of 0.4% and offers a more modest yield of 0.7%. However, the fund, which focuses on medium-term bonds issued by municipal governments across the United States, has the advantage of providing investors with income exempt from federal income tax. This makes the SWNTX fund a solid choice for investors who want to hold a bond fund in a taxable brokerage account.

With $795.4 million in assets under management, this fund invests in 530 high-quality municipal bonds that can better hold their price in a rising rate environment compared to many corporate bonds and US Treasuries.

With the US Federal Reserve expected to start raising its benchmark interest rate in the coming weeks, the SWNTX fund is a good option right now as it offers stability against stock market volatility and protection against the Fed. , which, according to some accounts, could raise interest rates. five times more in 2022.

As of the date of publication, Joel Baglole had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a reporter for the Wall Street Journal and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.


Comments are closed.