3 U.S. Bond Funds To Buy For Yield And Stability In 2022

bond funds - 3 U.S. Bond Funds To Buy For Yield And Stability In 2022

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It’s been a wild ride for stocks so far in 2022. And it’s becoming an interesting year for bond funds.

Barely through two months of the year and the benchmark S&P 500 index is down 9% year-to-date, while the Dow Jones Industrial Average has declined 7% and the technology laden Nasdaq composite has pulled back 14%. All three indices have been in correction territory defined as a decline of 10% or more at various points since the start of January.

Many well-known stocks such as Meta Platforms (NASDAQ:FB) and PayPal (NASDAQ:PYPL) have fallen more than 35% in the past eight weeks. So, what’s an investor to do during a time of volatility such as the one we’re experiencing now?

Buy bonds, of course.

The debt instruments used by companies and governments to finance projects and operations are typically more stable and predictable than stocks. And bond yields, or the return provided to investors, have been marching higher this year, with the yield on the U.S. 10-year Treasury Note nearing 2%.

As stock markets continue to gyrate, here are three U.S. bond funds to buy for their yield 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)

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Vanguard is one of the leaders in the investment industry, offering a diverse range of products and some of the lowest fees around. 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.

Its holdings are comprised of 66% U.S. government bonds, with the majority having one-to-five-year maturity dates. The BND fund offers an average yield of 2.16% and has provided investors with an average rate of return of 3.84% since its inception in 2007.

As is typical 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 government mortgage-backed bonds, currently has $310 billion of assets under management and is top rated among ETFs.

Fidelity Investment Grade Bond Fund (FBNDX)

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

The FBNDX fund currently yields 1.40% and primarily holds AAA rated U.S. Treasuries as well as a smattering of foreign government bonds, including in Canada. 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 rather than a quarterly or annual basis. The monthly dividend payout averages about 2 cents per share. Not spectacular, but for long-term investors, those 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)

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

With $795.4 million of assets under management, this fund invests in 530 investment-grade municipal bonds that can maintain their price better in a rising-rate environment compared to many corporate bonds and U.S. Treasuries.

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

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at 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.


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