How to select the best bond funds
Nov 08, 2022 By Triston Martin

Bonds, money markets, certificates of deposit (CD), and other low-risk investment options frequently focus portfolio allocations for investors looking to preserve their capital.

There are corporate bond funds, bond index funds, high-income funds, United States bond funds, emerging market bond funds, municipal and foreign funds, short-term and intermediate-term, and long-term bond funds, and multi-sectors bond funds.

You might purchase and retain bond funds having a few objectives, such as returns, diversification, and stability. Retired investors can pursue all these three objectives. Diversification may be more important to long-term buyers. The best funds frequently combine wide investor diversity with minimal costs.

Based on these rules, this article will discuss the best bond funds for 2022. They are divided into index bond funds and actively managed funds.

Bond Index Funds

These bond funds are a wise choice if you want to invest in a wide variety of bonds at a reasonable price.

Vanguard Total Bond Index Funds (VBTLX)

Inception: 2001

Tracking Index: Bloomberg Barclays U.S. Aggregate Float Adjusted Bond Index

Minimum Investment: $3,000

Expense ratio: 0.05%

Holdings: 18,064

VBTLX bond funds hold more than thousand bonds. Together, they represent a broad range of the U.S. bond market that is openly traded. When you're ready to grow, the ideal bond fund to invest in is VBTLX. Being a diversified and low-cost fund, VBTLX will balance risk.

These funds are typically suitable for investors who:

  • Have Investment horizons of the intermediate term (4 to 10 years)
  • Those looking for an investment that prioritizes income above growth
  • For those who are not very risk tolerant associated with sudden changes in price.

Like other bond funds, one of the risks associated with VBTLX is that increasing interest rates result in the price drop of the bonds in the portfolio, lowering the net asset value (NAV) of the fund. Investors may view the VBTLX fund as their primary bond holding because it invests in many fixed-income market categories and maturities.

Fidelity Total Bond Fund (FTBFX)

Inception: 2002

Tracking Index: Bloomberg Barclays U.S. Aggregate Float Adjusted Bond Index

Minimum Investment: None

Expense ratio: 0.45%

Holdings: 6,047

If you're searching for a diversified bond index fund that may outperform other funds over the long term, FTBFX is a best Fidelity bond funds for 2022.

As a result, FTBFX can provide longer-term returns that are higher (more than 10 years). But compared to standard core index funds, it involves a little bit higher risk.

FTBFX is the end product of a bond index fund with great long-term performance. At 45 basis points, it is also the most costly fund on our list. Although the bond index fund primarily invests in American bonds, it also holds debt issued by overseas companies. At the end of September 2021, the fund had little under 7% cash.

Vanguard Intermediate-Term Bond Index funds (VBILX)

Inception: 2001

Tracking Index: Bloomberg Barclays U.S. Aggregate Float Adjusted Bond Index

Minimum Investment: $3,000

Expense ratio: 0.07%

Holdings: 18,064

VBILX index fund makes investments in intermediate-term bond index funds. These bond index funds represent the "sugary spot" for investing in bonds. Bonds with longer maturities frequently carry higher yields. Compared to short-term bond index funds, they perform better over the long run. However, their market risk is smaller. With VBILX, you receive a healthy mix of risks and returns for a 0.07% of expense ratio. For VBILX, a $3,000 upfront investment is required.

Actively Managed Bond Funds

An actively managed bond fund is a good option for long-term buyers who don't take on a bit more market risk. It is capable of holding any bond in a variety of markets. These bond funds fall under the "multi-sector" category. They hold various bonds, including high-income bonds, which carry more risk, and overseas bonds.

Fidelity Strategic Income Fund (FADMX)

Inception: 1994

Tracking Index: Bloomberg Barclays U.S. Aggregate Float Adjusted Bond Index

Minimum Investment: 0.00

Expense ratio: 0.66%

Avaerage Total returns: 14.64%

If you want high returns but are okay taking on increased risk, FADMX can be the best option. People who want a high current income from their investments and have a modest to high-risk tolerance level will benefit the most from this product.

It might be a wise investment if you are okay with giving up above-average gains in the short period for FADMX's 2.14% returns.

If you want above-average returns, you should be patient. For a 10-year yield, FADMX has frequently beaten ordinary multi-sectors funds, though only sometimes for shorter time frames. It does not require any minimum investment.

Loomis Sayles Bond (LSBRX)

Inception: 1991

Net Asset: $11.23

Expense ratio: 0.92%

Total Net Assets: $5.20 Billion

Minimum Investment: $25,00

Holdings: 600

LSRBX bond funds can result in long-term stock-like returns like other bond funds, but you should be ready for stock-like drops in challenging markets. When the economy declined in 2008, LSBRX dropped 22%, but when the recovery started in 2009, it surged 37%.

For extended periods, the above-average risk of LSBRX may be worth the above-average functioning. Considering the seasoned management team and successful implementation, LSBRX’s expense ratio is 0.92%, which appears reasonable.

Bottom Line

Compared to stocks, bond funds frequently have reduced market risk. Even when equities decrease, the value of bonds can increase. The ideal way to use funds is to pair them with mutual stock funds to create a diversified mutual fund portfolio.

These bond funds are the best bond funds to buy now in the fixed income market, but there might be better matches for your objectives. Before purchasing, make sure the bond funds are appropriate for your investment objective and risk tolerance.