If you have been thinking of investing in the bond market, then you heard a thing or two about the Vanguard Total Bond Market Index Fund (VBMFX). The Fund seeks to give investors seeking to invest in U.S. grade bonds a broad exposure. One of the ways to achieve that goal is by investing 30% corporate bonds, and the remaining 70% in U.S. government bonds. Furthermore, the fund invests in bonds that have varying maturities.
The fund promises minimum risks, and the only major risk you have to worry about is that of interest rates. As the interest rates increase, a price decrease of the bonds held in the portfolio may occur. In turn, that leads to a lower pricing of the Fund’s Net Asset Value (NAV). However, the Fund spreads its investment in all of the fixed market’s segments and maturities. That has led most seasoned investors to see it as the best way to establish a core bond holding. In that regard, let us look at why the VBMFX is a great option for those looking for a bond exposure.
1. Lower Risks
Morningstar refers to the fund as a low-cost, low credit-risk option because of the way it executes its investments. It focuses 30% of its funds in corporate bonds and the rest in government bonds. That strategy serves to gives investors assured returns, but with lower interest rates. As part of its investment analysis, the VBMFX keeps track of Bloomberg Barclays US Aggregate Bond Index.
2. Maturity Options
You have an option to invest in the Fund for less than a year, or invest for more than 30 years. About 1.6% of the fund investments mature in less than a year, while those that mature after more than 30 years are just 0.5%. About 81.7% of the Fund’s Investment matures after a period of 1 year to 10 years. That gives you an investor sufficient flexibility to get as much exposure as possible.
3. Total Funds
At the time of writing this article, the VBMFX had assets totaling over $195.30 billion, which it has invested in about 17,484 different holdings. By any standards, those are holdings are many and it is able to manage them profitably. That should inspire confidence in any investor who wants to have a get some exposure in the bond market.
The fund’s duration was 6.11 years as of December 31, 2017. That meant if the interest rates rose by 1%, the fund’s total value would drop by 6.11 percent. The duration indicates how a bond fund’s changes with interest rates, although the actual changes will not be exact.
The fund gave returns of 0.32% in the past year, 0.95% during the past 3 years, and 1.52 for the last 5 years. According to Morningstar, the fund’s return for the last five years is average. Its risks were above average in the 3 and 5 years periods.
6. Since 1986
The fund opened its doors in 1986, and it has grown steadily ever since, always providing investors with returns. It was able to wither the last financial crisis, which makes it among the best funds to for a market exposure. It parent company is the Vanguard, which is the largest in the U.S. and it offers investors one of the widest array of Exchange-Traded Fund ( ETFs) and mutual funds.
7. Low Cost Approach
The fund uses a low cost approach by targeting low-cost index products, and mixes them with actively managed funds to increase returns. You therefore lower your risks while getting reasonable returns throughout.
The fund has had Joshua Barrickman at the helm of its management since 2013. He has shown solid leadership, and he is a veteran fund manager. Overall, he has managed to keep the VBMFX team productive and focused on the organization’s investment goals.
The VBMFX expense ratio is only 0.15%, which assures you of reaping maximum benefits from your bond investment.
10. Risk Factors
The risk factors that you will face, as is the case with any bond investor are interest rate risk, risk of default by issuers of the debt, credit risk, among other less common risks. The risk of default is the most costly, which is why VBMFX invests 70% of the bond value in bonds issued by U.S. government, and only 30% in corporate bonds. Overall, VBMFX only makes the very best investment decisions for its investors.
We hope that you will have a great time as you venture into the bond market, and you will take advantage of the bond market exposure that VBMFX offers.
Written by Garrett Parker
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