Uncommon Cents

The Vanguard Total Bond Market Index Fund (VBMFX) is my third largest holding, trailing only the Vanguard Total Stock Market Index Fund (VTSMX) and the T. Rowe Price International Discovery Fund (PRIDX), and the latter at some point soon will be sold and replaced with the Vanguard Total International Stock Index Fund (VGTSX) in my Vanguard Brokerage Option. This fund, like all of the others mentioned above, is held in my 403(b).

The Vanguard Total Bond Market Index Fund, according to Vanguard, “seeks to track the performance of a broad, market-weighted bond index,” although I have not seen exactly which index it refers to. On Vanguard’s Web site, the fund tends to compare itself to the Barclays US Aggregate Bond Index, and its composition is over 80% in Aaa rated bonds.

Because it’s a bond fund, one would expect that the net asset value of the fund–aka the fund price per share–to be relatively stable, and a graph of the pricing since 1990 shows that the price is almost always between $9.20 and $10.60 per share. Currently, the price is $10.09 per share.

Also because it’s a bond fund, price appreciation of the net asset value isn’t expected; what really matters is the dividend yield, and currently the fund is paying 4.65%, which beats the pants off of what you can expect in the current fixed income market for certificates of deposit or money market accounts. And because it’s a Vanguard fund, you would expect low expenses. VBMFX doesn’t disappoint with an expense ratio of 0.20%.

Like the Vanguard Total Stock Market Index we discussed the other day, it requires a $3,000 minimum investment in non-401(k) type accounts which may be an issue for beginning investors–those investors may want to consider the Vanguard Total Bond Market ETF (BND) instead.

While it’s not quite my favorite bond fund, it’s a great one, and I have no problem with this fund being in anyone’s portfolio.

Tags: 401(k)s and equivalents, Bonds, Investing, Mutual funds

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