Vanguard’s Cheapest Investment-Grade Bond ETF Costs Less Than $3 a Year for $10,000. Nobody Says It.

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Vanguard’s Cheapest Investment-Grade Bond ETF Costs Less Than a Year for ,000. Nobody Says It.

Quick Learning

Low Fees Matter: VCIT charges just 0.03% in expense ratios, or about $3 a year for every $10,000 invested.
Investment-Grade Focus: VCIT focuses on high quality corporate bonds with medium duration exposure and 5.13% SEC yield.
Taxes Can Ruin Returns: Distributions are taxed like ordinary income, making the VCIT a better fit for tax-advantaged accounts like Roth IRAs.
The analyst who called NVIDIA in 2010 recently named his top 10 stocks and the Vanguard Intermediate-Term Corporate Bond ETF was not one of them. Get them here for FREE.

The analyst who called NVIDIA in 2010 recently named his top 10 stocks and the Vanguard Intermediate-Term Corporate Bond ETF was not one of them. Get them here for FREE.

Vanguard’s most popular bond ETF is also the largest US-listed ETF by assets under management (AUM). This is it Vanguard Total Bond Market ETF (NASDAQ:BND). With an average expense ratio of 0.03%, investors gain exposure to over 10,000 investment grade corporate bonds, Treasury bonds, and mortgage-backed securities spanning short, medium, and long maturities. It is very popular because it is cheap, versatile, and easy. Many investors use it as a bond allocation for a classic 60/40 balanced portfolio.

But like most jack-of-all-trades funds, BND is also a master of nothing. It is not a high-yielding bond ETF. It’s not the safest bond ETF. It’s also not a very targeted way to set yourself up based on interest rate expectations or credit quality preferences. It really sits in the middle of the pack. That’s not really a bad thing. For investors who simply want broad exposure to the US investment-grade bond market, BND remains a perfectly reasonable choice.

However, if you want more insight into your bond allocation, Vanguard has several alternatives that are less expensive while providing more clarity. If your focus is investment-grade corporate bonds, meaning bonds rated BBB and above, this is one ETF to consider Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ: VCIT).

What is VCIT?

VCIT is a passive ETF that tracks the Bloomberg US 5–10 Year Corporate Bond Index. This benchmark currently includes 2,235 investment grade corporate bonds. The portfolio is dominated by BBB-rated bonds, which make up about 47% of the holdings, followed by A-rated bonds at about 45%. While there are AA- and AAA-rated issuers in the fund, they represent a very small portion of the portfolio. That’s normal in the corporate bond market because there aren’t many companies with very high credit ratings.