Vanguard Bond Funds to Avoid for Higher Rates: Vanguard Long-Term Bond Index (VBLTX)
Minimum Initial Investment: $3,000
Generally, the longer the duration of the bond, the greater the interest rate risk. This makes Vanguard Long-Term Bond Index (MUTF:VBLTX) one of the Vanguard bond funds to avoid when interest rates are expected to rise.
Not only are long-term bonds more sensitive to interest rates, the passive nature of VBLTX can also be a negative when rates are rising because the fund manager is powerless to make adjustments to decrease the average duration of the holdings.
So, if there is a sharp increase in interest rates, there will be a sharp decrease in long-term bond prices, and the long-term bond index investor is forced to passively step off the proverbial cliff along with those falling prices.