Vanguard Intermediate-Term Investment Grade Fund (MUTF:VFICX): Like other Vanguard bond funds, VFICX features ultra-low operating expenses (only 22 cents a year per $100 invested). The fund also tilts toward better-quality issuers, which lowers your default risk. Current yield: 4.23%.
DoubleLine Total Return Bond Fund (MUTF:DLTNX): Managed by brilliant, opinionated bond wizard Jeffrey Gundlach, DLTNX invests heavily in mortgages, including those without backing from government agencies such as Fannie Mae or Freddie Mac. Gundlach’s style is aggressive, so you should earmark only a sliver of your wealth to this fund. But what a yield — 8%, based on the past 12 months’ distributions. Moreover, DLTNX has maintained a steady to slightly upward-trending share price over the past year — a sign that Gundlach has done a good job of selecting mortgages that continue to pay as scheduled.
The Finishing Flavor
Emerging-markets bonds are the final spice to stir into your mix. While many developed countries are fast losing creditworthiness, emerging markets as a whole have dramatically strengthened their finances since the late 1990s. In early January, Brazil auctioned a 10-year dollar bond issue at 3.449%, about the same as the French government is paying on euro-denominated debt!
Fortunately, the stampede for yield hasn’t yet snuffed out all the bargains in emerging-markets debt. A diversified ETF such as iShares J.P. Morgan Emerging Markets Bond Fund (NYSE:EMB), for example, still yields almost 5%. EMB focuses exclusively on government bonds.
If you’re O.K .with corporate debt, admittedly a somewhat riskier animal, TCW Emerging Markets Income Fund (MUTF:TGINX) is doling out a handsome 6.94%. I already own TGINX, and I like the risk-reward trade-off well enough to recommend it to you as well.