Fixed income investments

Help create portfolio stability, income—and more—for your clients

OVERVIEW

Why fixed income

As an advisor, you understand the immense value that fixed income investments can provide. You also know that choosing fixed income funds that support an individual client’s goals is often a complex decision. You have to take risk tolerance, investment time frames, income goals, and market conditions into account.

We’re here to support you in those decisions so that you can allocate your clients’ fixed income funds to help:

  • Reduce the pain of stock-market downturns.
  • Preserve capital for more risk-averse clients.
  • Generate income that can compound over time to build wealth and help clients pay for expenses.
  • Lock in higher yields and soften the risk of remaining in cash if rates change.

Take advantage of a brighter outlook for bonds.

When it comes to fixed income, the tendency is to focus on the Federal Reserve’s next move as it relates to interest rates, but when making portfolio allocation decisions, its far more important to focus on where the policy rate settles over the long run. Whether the economy lands soft or hard as the Fed unwinds its inflation-fighting hiking cycle, we expect interest rates to settle well above their pre-pandemic levels. And that makes a strong case for bonds.

A case for bonds

Over the long term, starting yields have consistently been reliable indicators of fixed income returns. While average yields have fallen from peak levels, they remain attractive relative to recent history and expected inflation. Moreover, the current level of 10-year real yields (10-year nominal yields less expected inflation) sits well above levels observed for most of the post-financial-crisis era.

While it’s always challenging to forecast rate changes, we believe higher rates are likely to last for a while. The aging population and larger fiscal deficits suggest that the neutral rate—the theoretical policy rate that would neither stimulate nor restrict an economy—has settled roughly a percentage point higher than what it was in the years after the global financial crisis.

 

The U.S. neutral rate is likely to settle at a higher level    

line graph of the us neutral rate from 1970 to 2020

 

Notes: Portfolio allocations were determined by the Vanguard Asset Allocation Model. The assets under consideration were U.S. and non-U.S. equities, non-U.S. fixed income, short-term U.S. Treasuries, long-term U.S. Treasuries, and U.S. credit. Vanguard Capital Markets Model® 10-year initial condition projections are as of September 30, 2024. For the soft-landing scenario, the allocation to U.S. short-term Treasuries is 2%. Percentages for each allocation may not add up to 100% due to rounding.

IMPORTANT: The projections and other information generated by the VCMM regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from VCMM are derived from 10,000 simulations for each modeled asset class. Simulations are as of September 30, 2024. Results from the model may vary with each use and over time. See below for more information.

Source: Vanguard.

Explore fixed income subtopics

INVESTMENT OPTIONS

Find bond funds for every client need


Our lineup of active and passive mutual funds covers the spectrum of fixed income maturities, durations, credit quality, and sub-asset classes and can help you tailor fixed income portfolios to individual clients' goals.

View all fixed income funds

For clients focused on avoiding losses, these funds stick to high-quality bonds and can help manage duration risk.

These funds can help reduce losses when equities decline.

These funds strive to boost income for clients relying on cash flow from their portfolios.
Cost advantage

Help boost clients’ bottom lines

Vanguard’s low fees and commitment to funds built on enduring investment principles can help you and your clients reach their goals more quickly. We designed our company differently, with no outside shareholders.1 This enables us to keep investment costs low, improving fee flexibility for your practice and your clients to keep more of their returns. It also gives us an edge in our active funds. We don’t need to take extreme risks to lift our active returns, so you don’t have to worry about surprises.

Choose a manager with deep experience

Competitive fees are only one driver of our returns. Since our founding in 1975, we’ve continuously honed our active strategies and indexing techniques, expanded our team and lineup, and gained the knowledge that comes from decades of managing in every kind of market.

70+

Fixed income funds

190+

Members of fixed income team

16

Offices around the world

4

New fixed income ETFs, two active, launched in the last year.

Data as of June 30, 2024.

COST ADVANTAGE

Help boost clients’ bottom lines

Vanguard’s low fees and commitment to funds built on enduring investment principles can help you and your clients reach their goals more quickly. We designed our company differently, with no outside shareholders.1 This enables us to pass along economies of scale, which helps us keep our investment costs low, improving fee flexibility for your practice and helping your clients to keep more of their returns. It also gives us an edge in our active funds: We don’t need to take extreme risks to lift our active returns. 

Choose a manager with deep experience

Competitive fees are only one driver of our returns. Since our founding in 1975, we’ve continuously honed our active strategies and indexing techniques, expanded our team and lineup, and gained the knowledge that comes from decades of managing in every kind of market.

70+

Fixed income funds

190+

Members of fixed income team

17

Offices around the world as of February 29, 2024

4

New fixed income ETFs, two active, launched in the last year.

SUPPORT YOUR PRACTICE

Get support for your practice

ETFs

With more than $2.8 trillion in ETF assets under management, including $445 billion in fixed income, we’re one of the largest ETF providers in the world.4 Our traders and sales team can help you identify client opportunities and dig into the details of how bond ETFs work. You can also monitor the ETF market with our quarterly report on cash flows and other ETF trends.

Active fixed income

You may know us best for our index funds, but we’ve been managing active fixed income investments since our founding in 1975. Our quarterly report, Active Fixed Income perspectives, provides insights on every sector of the bond market.

Market and portfolio perspectives

Every month, you'll get ideas for fine-tuning clients' portfolios and updates on the markets from our fund managers and analysts in our quarterly publications, Market perspectives and Portfolio perspectives.

Timely insights
 

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Tools and resources

Use our tools for reliable, unbiased data for Vanguard and non-Vanguard products. Include ETFs and mutual funds from any fund family. Independent analysis by Morningstar provides unbiased results.

 

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Portfolio analytics

Create and evaluate the fixed income portion of client portfolios. Analyze hypothetical performance risk statistics, country diversification, asset allocation, compare two portfolios side by side, and more.

Explore analytics
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Compare products

Easily compare up to five fixed income products in a convenient side-by-side layout. Generate custom, client-ready PDFs and easily email the online comparisons.

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Resources

DOWNLOAD

  • PDF

    Getting back into bonds: Choosing the right strategy

    This analysis from Vanguard’s Investment Advisory Research Center (IARC) compares the effectiveness of an immediate lump-sum investment with dollar-cost averaging or waiting in cash to invest in the future.

  • The enduring power of bonds

    You can share this brochure with clients to help them understand that reinvestment of interest income and compounding are much bigger drivers of bond returns than price changes. This awareness can help them worry less during bond market downturns.

FAQ

Get answers on fixed income investments

Compared to mutual funds, ETFs offer greater liquidity, transparency, and tax efficiency. ETF costs are often lower overall than mutual funds, but that is largely because most ETFs are index products, which generally have lower fees than active funds. Increasingly, however, more companies are offering both index and actively managed ETFs.

Actually, the first fund we ever offered, Wellington Fund, is an active fund that invests in stocks and high-quality bonds. We’re proud to have popularized index funds and continue to believe in them because they provide diversified broad market exposure at low cost. But active funds can play an important role for many clients, especially those who have a greater appetite for risk and an interest in outperformance. Active funds can also be a savvy choice for specific client goals. Active municipal bonds, for example, can help your higher-income clients generate income and lower their tax bills.

You don’t have to choose between them. Many of our advisor clients add both Vanguard active and index funds to clients’ portfolios. Another option is to use our index ETFs for active portfolio tilts. Generally, we believe active funds are best suited for your clients with a taste for alpha and ability to tolerate the accompanying risk.

Bond laddering with individual bonds can be a smart strategy for managing changing interest rates, but bond funds can achieve the same goal at lower cost, with greater diversification and ability to maintain portfolio risk profiles than a ladder built with individual fixed income securities. While it’s a common belief that holding bonds to maturity can avoid losses, the return profiles of a laddered portfolio of individual bonds and a fixed income fund should be similar.

Ready to explore our fixed income lineup?

View all fixed income funds

Have questions about fixed income? Contact us.

800-997-2798

 

Disclosures and footnotes

All investing is subject to risk, including possible loss of principal.

For more information about Vanguard funds or Vanguard ETFs, view detailed product information or call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

1 Vanguard is owned by its funds, which are owned by Vanguard’s fund shareholder clients.

2 The Morningstar Medalist Rating combines human and algorithmic research. The rating reflects a Morningstar analyst’s conviction that a fund will outperform peers on a risk-adjusted basis. It includes three positive ratings—Gold, Silver, and Bronze.

Gold-rated funds rank in the top 15% of their category with expected positive net-of-fee alpha.

Silver-rated funds rank in the next 35% of products with expected positive alpha.

Bronze funds in the bottom 50% of products that are predicted to have positive alpha.

Morningstar employs more than 100 analysts to analyze Morningstar data and fund documents and, when possible, conduct face-to-face interviews with the fund management team. Morningstar analyst ratings take three pillars into account: 1) The People Pillar analyzes the person who manages a fund and considers characteristics such as relevant investment experience and length of tenure. 2) The Process pillar reflects how well managers execute their investment strategy over time. 3) The Parent pillar reviews the stewardship quality of a firm, including characteristics such as the quality of the product lineup and alignment of investor and firm interests.

3 For the 10-year period, 42 of 44 bond funds outperformed their peer group averages as of June 30, 2024; results will vary for other time periods. Only funds with a minimum 10-year history were included in the comparisons. (Source: LSEG Lipper) Note that this competitive performance data represents past performance, which is not a guarantee of future results, and that all investments are subject to risks. For the most recent performance, visit our website at advisors.vanguard.com/investments/all.

4 Vanguard data as of June 30, 2024.

Diversification does not ensure a profit or protect against a loss.

Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline.

Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares. For some investors, a portion of the fund's income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.

IMPORTANT: The projections and other information generated by the Vanguard Capital Markets Model regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VCMM results will vary with each use and over time.

The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.

The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard's primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include U.S. and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.

Morningstar data © 2024 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.