Our Picks of Best Bond Funds to Invest

The Best Bond Funds to Invest In

Publushed by:

John E Chambers

Last updated:

Best Overall: Vanguard High Yield Corporate Fund

Short summary

The Vanguard High Yield Corporate Fund is a high yield bond fund that invests in junk bonds from issuers with a high financial risk.

Vanguard classes this fund as focusing on medium and low quality corporate bonds which makes it riskier, but the yields are potentially higher. Their current asset pool is $29.65 billion which covers 607 different holdings, including First Data, Univision, and Navient.

What makes this one of the best Vanguard bond funds is that it’s backed by the firm’s solid reputation. This fund was launched in 1978 so it has a long history of performing, and with Vanguard being the largest mutual fund provider in the country, you can feel some peace of mind when investing with them. Their reputation is for the best bond index funds that are low cost, but their high yield funds like this also do exceptionally well.

The fees charged for Vanguard High Yield Corporate Fund are low no matter what share class you buy into, which is good news for investors who like to hold onto their earnings and not have them swallowed up by extra costs. The higher share class you join, the lower the fees are as well, so there’s an even better chance of keeping the money you earn if you can afford the hefty buy-in deposit.

One downside to this bond fund is the risk involved, and while that might be okay for some investors, it can scare others away. When you’re dealing with retirement funds specifically and want to ensure you protect your investments, taking a risk with junk bond funds like this isn’t always the wisest move. You’ll have to consider how long you intend on holding onto this investment for and what your financial goals are before jumping on board.

Another possible negative is that the minimum deposit for the higher class is out of this world, and if you plan on joining the Admiral share class, you’ll need to cough up $50,000 for the initial investment. This is likely out of the realm of possibility for many retirees and poses an even greater risk, so if you only have $3,000 or more to invest, the most basic share class version of the fund is your safest option.

Vanguard has a solid reputation when it comes to bond funds, and whether you want the best intermediate bond funds or something risky and high yield, they’ve got you covered. The Vanguard High Yield Corporate Fund is our top pick for its low fees and consistent performance, even if it is a riskier option with higher deposits for some share classes. Overall, it’s a smart choice for a retirement bond fund that will serve you well in the future.

Best Overall
Vanguard High Yield Corporate Fund
4.6/5
Vanguard High Yield Corporate Fund

Runner Up: Dodge and Cox Income Fund

Short summary

Dodge and Cox is another well-known name when it comes to wealth management firms, and if you want a reliable source of income for your future, their Income Fund is the way to go.

At last glance, Income Fund was responsible for more than $69 billion in assets and their diverse portfolio includes a 20% investment in high yield bonds and 80% in investment grade debt securities, so you get a little bit of both. Their current return for investors is 8.31% and it’s a solid choice when you’re looking for a retirement friendly fund.

What makes Dodge and Cox’s Income Fund one of our favorites is that they have consistent returns that are rated above average and this number has grown over the past three years. Unlike the riskier high yield bonds, investing your retirement money in something like this could help you sleep easier at night. Their focus for investments is to have more than 80% in premium fixed income holdings which means more chance you’ll do well.

Dodge and Cox are not only known for having some of the best municipal bond funds, like their Income Fund but also keeping fees low for their members. They manage to beat performance records when it comes to returns and without taking too much of their member’s money in the process. If you want to hold onto every penny possible while your investments are growing, this fund is a smart option.

However, it’s not all good with this fund, as any type of fund that focuses this much on bonds may be at risk of loss. Without as much diversity as you’d find in other bonds funds, there’s a chance that a sudden change in interest rates or some other external factor will cause your investment to bottom out. Although Income Fund is actively managed which negates some of the risks, it’s still worth considering.

The $2,500 investment minimum might scare some potentials away though, especially if you’re starting from scratch and trying to build a nest egg for retirement. This amount is slightly less than others we’ve seen but putting your trust in a bond fund like this and hoping for the best can still be terrifying. There are other funds out there with a smaller buy in of around $1,000, so it’s all about what you can afford to lose.

Dodge and Cox are leaders when it comes to bonds fund and their Income Fund is a smart choice for those planning their retirement. This fund can provide you with a stable income stream in the future and although there are some risks to consider, having a trusted name like this actively managing the fund should alleviate some of your concerns.

Best Overall
Vanguard High Yield Corporate Fund
4.6/5
Vanguard High Yield Corporate Fund

Alternative #1: Fidelity US Bond Index Fund

Short summary

The Fidelity US Bond Index Fund is a fund that tracks the Barclays Aggregate Bond Index, including investment grade and taxable US bonds.

With at least 80% of its assets allocated to bonds of this index, including 40% in treasuries, with 70% of overall assets having an AAA credit rating. It’s considered a safe and conservative investment option with over $59 billion in assets and a five year return of 16.11%.

One of the best things about this bond fund is that there’s no minimum required to invest. When you look at the other bond funds out there designed to cater to retirees, this is a feature that we don’t see that often. Having no minimum buy in opens up the door for everyone to get started investing for their retirement without the pressure of putting all of your savings into one basket.

In addition to the no minimum deposit setup, the fees for this gold rated fund are considered rock bottom. When you combine that with the conservative portfolio of bonds that it holds, Fidelity US Bond Index Fund is a smart option for those looking towards retirement. Most of the money you invest will remain yours and you’re still getting an actively managed fund that utilizes decades of industry experience and knowledge, so there’s no need to keep an eye on its performance.

On the downside, this is a fund that’s highly sensitive to credit ratings and interest rates, so you need to be mindful of how quickly it can change. The US Bond Index Fund is actively managed and it’s their job to keep an eye on these things, but that doesn’t mean they can predict it all. The risk of an index fund that’s this sensitive to change is something worth considering when looking at your choices.

Another concern of the Fidelity US Bond Index Fund is how it performs during better times for the credit market. As a fund that’s dedicated to the performance of credit risky bonds, the best results will be when they’re tanking, which means when they’re doing well, your investment will struggle.

Although there are some minor risks to be aware of with the US Bond Index Fund by Fidelity, as with any investment, it’s considered a conservative option and a safe choice for future retirees. The fees are low and it holds many quality and financially healthy assets, so you have little to worry about when planning your retirement financials with this fund. Fidelity’s Bond Index Fund is a smart pick for your future and has proven itself with consistent returns.

Best Overall
Vanguard High Yield Corporate Fund
4.6/5
Vanguard High Yield Corporate Fund

Alternative #2: Great West Bond Index Fund

Short summary

Another top contender for the best bond index fund comes from Great West, with their conservative approach that also follows the Bloomberg Barclays US Aggregate Bond Index.

Great West has more than 50 mutual funds and a solid reputation for performance, and its Bond Index Fund holds at least 80% of its $552 million asset pool in securities like fixed income securities and options on future contracts.

What draws investors to this fund, aside from the low fees, is that the risk is considered below average as well. If you’re planning for retirement and looking for a bond fund that’s not going to take too many chances, the Great West Bond Index Fund is a safe bet. As a conservative choice, its assets are predominantly financially healthy, which means less worry for you and your investment. The low fees for members give it a rating of below average when stacked up against its peers which is another boost for potential members who want value for money.

Another great thing about this fund is that it’s diverse in the sectors its securities come from. Around 45% of the Great West Bond Index Fund is dedicated to government, followed by 30% in securitized, and 25% in corporate securities. Although it can be highly sensitive to interest rate changes, having a good mixture of these types and different sectors helps to alleviate some of this risk.

The downsides to this fund are predominantly focused on its performance for the last year, with an average return of -1.02 for its members. Although this isn’t a sign of overall performance and should be taken at face value, seeing that the fund actually lost money in the past 12 months is a worry. When you’re looking for a reliable bond fund for retirement, seeing these types of numbers might turn some off.

In addition to the poor performance last year, the history of their returns has been consistent. Although looking at it overall, it’s considered low risk and a conservative option, it seems to be hard to gauge performance in the future. If you’re someone who wants to take control of their investments and have a better idea of what to expect, choosing individual bonds rather than a fund like this would be best.

The Great West Bond Index has suffered from poor performance in the last 12 months and may look inconsistent with returns, but that doesn’t mean it’s not a solid choice for a bond fund. If you’re planning to retire in the near future and want a conservative bond fund that tracks Barclay’s Aggregate Bond Index and makes healthy and diverse choices, The Great West Bond Index can deliver on every front.

Best Overall
Vanguard High Yield Corporate Fund
4.6/5
Vanguard High Yield Corporate Fund

Alternative #3: Federated Hermes Opportunistic High Yield Bond

Short summary

The Total Return Bond Fund by Metropolitan West is another favorite of ours when looking for a retirement friendly bond fund.

This fund is dedicated to fixed income and unrated securities, with over 80% of its assets there, and the remaining 20% placed in securities that are rated lower than investment grade. The Total Return Bond Fund’s goal is to maximize long term returns and they do so with active managers that have been with them for more than 24 years, which is a lot more than most bond funds can claim.

One thing that draws people to this bond fund is its reputation and large asset pool. When you compare the Metropolitan West Total Return Bond Fund to its peers, you’ll note that its $90 billion-plus assets tower over the competition. Not only is this figure impressive in itself, the fact that this covers over 1,800 holdings means greater versatility and a better chance for your investment.

What makes this one of the best short term bond fund options is that the maturities of its bonds are between three and 10 years. If you’re planning for retirement and don’t want something that will take 20+ years to start seeing some real earnings on, choosing a fund like this is key. For retirees especially, this shorter time frame is a huge benefit and would allow you to leave the workforce sooner rather than later.

The biggest letdown of this fund is that its minimum purchase price is around double what you’d expect, so there’s a price to pay for getting on board with a heavy hitter like this. The Total Return Bond Fund requires at least $5,000 to become a member which might be impossible for some potential investors and could be terrifying for others. If your retirement nest egg is still quite small, putting it all into an option like this isn’t the smartest move.

Additionally, there were some concerns about the performance of the fund in the previous year, which was significantly lacking when you compare it to the performance of the past. Their YTD returns are just 1.05% and not that impressive, and especially since you have to make such a huge deposit to get started. Furthermore, their fees and rated as above average when you compare to their peers, which is another hit as far as costs are concerned.

The Total Return Bond Fund from Metropolitan West is considered a heavy hitter and has amassed a huge number of assets with a long-standing management team that’s served it well. However, the fund comes with high fees, higher than usual deposits, and it’s experienced some downfalls in the last 12 months, so you’ll have to weigh up whether it’s right for you.

Best Overall
Vanguard High Yield Corporate Fund
4.6/5
Vanguard High Yield Corporate Fund

Bond Funds FAQ

about bond funds

Investing for first timers can be challenging and if you’re looking to secure an income for retirement, the pressure to get it right is even more intense.

To learn a little more about what bond funds are and how they can earn you money, we’ve answered some commonly asked questions that can give you a push in the right direction.

Can You Lose Money In A Bond Fund?

Yes, it is possible to lose money with any type of investment as there’s always some level of risk involved, so you should only invest what you can afford to lose.

A bond fund buys and sells securities and because they don’t often hold onto these bonds until their maturity, there’s a chance that you can lose some of the money you invested.

What Is A Good Return On A Bond Fund?

The return of a bond fund will depend on the types of securities the fund invests in.

The most common approach of long term government bonds will see an average return of between 5% and 6%, so while it’s less of a return than you’ll earn with stocks, it’s considered a lower risk option.

What Is The Difference Between Investing In Bonds And Investing In A Bond Fund?

Investing in individual bonds might be ideal for those looking to predict their future income more closely, whereas a bond fund is better for investors happy to leave their financial outcome in the hands of management.

If you prefer to have a more diverse portfolio and don’t want to do the work yourself, using a bond fund that invests in many is likely the best option.

Are Junk Bonds High Risk?

A junk bond is riskier to invest in because these are rated BB or lower in terms of credit ratings and the financial performance of the issuer comes into play.

However, the payoff is that they will pay a higher yield to investors, so you need to weigh up whether you want higher risk and yields or prefer to play it safe for smaller returns.

Bonds for a Secure Income Stream

The beauty of investing in a bond fund is that it provides a steady income stream in the future, even if it sometimes is a little slower in returns compared to other riskier alternatives.

If you’re looking to diversify your portfolio and want the security that an expertly managed bond fund offers, consider investing in one of our recommendations.

Vanguard High Yield Corporate Fund
4.6/5

Vanguard High Yield Corporate Fund

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John E Chambers

John E Chambers is an experienced financial advice expert. Born in Chicago, he has a master's in Industrial Finance, but he has spent decades offering investment advice to businesses and individuals alike. He is the founder of RetireeWorkforce.com and wants the website to be valuable for retirement advice. In addition, he writes articles that help users jump-start their retirement plans and choose the best investment options. If not pondering over stock market statistics or reading some magazines, you can find John spending time with his family. As an early retiree, John also offers unique insights into what post-retirement life is like.