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4 Vanguard Bond Funds to Buy (And 3 to Avoid) for Higher Interest Rates

Higher rates are coming and now is a good time to distinguish between the best and worst bond funds

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Vanguard Bond Funds to Buy for Higher Rates: Vanguard Emerging Markets Government Bond Index (VGOVX)

Expenses: 0.49%
Minimum Initial Investment: $3,000

Investors looking to hedge away interest rate risk coming from higher rates in the U.S. can diversify into bonds outside the U.S. and hold funds like Vanguard Emerging Markets Government Bond Index (MUTF:VGOVX).

Put simply, interest rates around the world don’t move in lock step with each other. So if interest rates are going up in the U.S. (and bond prices are going down), they are not always doing the same in other countries.

For current example, the Barclays U.S. Aggregate Bond Index is up about 3% year-to-date, whereas VGOVX is up about 6.5%. That’s low correlation in the short term.

With that said, emerging markets still have interest rate risk but also the political risk inherent with emerging markets.

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