VBTLX vs BND: Which Vanguard Total Bond Market Fund is Better? (2023)

In this guide, we compare two of the most popular Vanguard fixed income products: VBTLX vs BND.

VBTLX and BND are essentially the same product, with some small nuances differentiating them.

Regardless, both hold some veryUndervalued Investmentsthat can reward investors over the long run.

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VBTLX vs BND – Full Comparison

Below you will find an in-depth comparison between VBTLX vs BND.

BND Description

Here is the BND descriptionfrom Vanguard’s website.

“The fund’s investment objective is to seek to track the performance of a broad, market-weighted bond index.

Provides broad exposure to the taxable investment-grade U.S. dollar-denominated bond market, excluding inflation-protected and tax-exempt bonds.”

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VBTLX vs BND: Minimum Investment

VBTLX has a $3,000 minimum investment, but there is no minimum investment requirement for BND.

Thus, BND is going to be a better choice for new investors, or someone without a lot of upfront capital to invest.

It’s very common for investment products to have a minimum investment, ranging from $3,000 to $50,000.

Additionally, VBTLX allows fractional share purchases and automatic interest income reinvestments.

For example, you can buy 0.75 shares of VBTLX but not of BND.

VBTLX vs BND: Income Reinvestment

VBTLX and BND both allow automatic contributions and withdrawals.

However, only VBTLX allows automatic interest income reinvestments.

For example, say you received $10 in monthly interest income. This is not enough money to purchase an entirely new share of BND.

Well, that doesn’t matter with VBTLX; you can just reinvest that interest income in a partial share and walk away.

However, if you own BND, you would need to find an alternative use for the $10 because it cannot purchase an entire share.

Realistically, you will have to earn a few months of interest income to purchase an entire share, but you’re missing out on compounding interest in the meantime.

VBTLX vs BND: Real-Time Pricing

BND is an ETF product that provides real-time pricing, which means you can see its price change throughout the day during trading hours.

VBTLX is an indexed mutual fund, and you cannot trade shares during the day.

All orders are executed a few hours after market close, which makes closing a position more difficult.

Investment Holdings

So, you may be asking, “What are the underlying holdings for VBTLX and BND?” Here are some of the top holdings for VBTLX:

• Government – Mortgage-Backed
• Treasury/Agency
• Industrial
• Finance
• Foreign

Here are some of the top holdings for BND:

• Government – Mortgage-Backed
• Treasury/Agency
• Industrial
• Finance
• Foreign

Notice anything interesting? VBTLX and BND have the exact same top holdings. Now, why is this?

Both fixed-income funds track the same index, so their underlying holdings will always be the same.

VBTLX Pros

VBTLX is Vanguard’s most popular bond index fund. Here are some of the best aspects!

• Vanguard Product
• Automatic Interest Income Reinvestment
• Partial Share Purchases
• Diversification
• Less Risk Than Stocks
• 0.05% Expense Ratio

Having a fixed income component to your investment portfolio becomes crucial as you creep towards retirement.

In fact, many financial advisors use the following rule of 100 for a quick heuristic:

You take your age, subtracted by 100, and that should be your stock allocation, and the remaining should be fixed income.

For example, a 40-year-old should own 60% stocks and 40% bonds (using the rule of thumb).

There’s nothing perfect about this quick rule, but it helps show investors that bonds are less risky than stocks during market downturns.

When the stock market lost 40% during the last market crash, bond prices actually rose!

VBTLX has an extremely low expense ratio (0.05%), and their peers have funds with expense ratios hovering around 1.50%.

Additionally, VBTLX provides broad diversification by investing in a large set of bonds.

Lastly, VBTLX allows fractional share purchases, and you can always reinvest your monthly interest income.

VBTLX Cons

Here are a couple of downsides to investing in VBTLX:

• $3,000 minimum investment
• No Real-Time Pricing
• Interest Rate Risk
• Passive Management

First, $3,000 can act as a huge barrier to entry, and no new investors are going to be able to purchase this product.

Next, because VBTLX is an indexed mutual fund, and not an ETF, there is no real-time pricing or intraday trading.

“Interest rate risk is the potential for investment losses that result from a change in interest rates.

If interest rates rise, for instance, the value of a bond or other fixed-income investment will decline.”

Interest rates are at rock bottom levels, and a small move up in rates could crash bond prices.

Finally, VBTLX is a passively managed bond fund (opposite of active).

I tend to personally believe in passive management for stocks but active for bonds.

BND Pros

Again, as I mentioned earlier, there isn’t a huge difference in VBTLX vs BND, but these are my favorite things about BND:

• Vanguard Product
• No Minimum Investment
• Real-Time Pricing
• 0.035% Expense Ratio

The biggest upside to BND is that there is no minimum investment, so you can start investing in fixed income immediately!

Additionally, BND has a lower expense ratio (0.03%) than VBTLX. This breaks down to 30 cents in fees for every $1,000 invested.

Lastly, because BND is an ETF, there is intraday trading and real-time pricing.

I don’t recommend day trading, but being an ETF does make it easier to buy and sell your securities, rather than waiting until the end of day like an index fund.

BND Cons

Here are a couple of downsides to BND:

• No Partial Share Purchases
• Interest Rate Risk
• Passive Management

BND has the exact same potential for investment rate risk as VBTLX. This risk (and default) are the two biggest problems for fixed income.

While fixed-income tends to be safer than stocks, there is still potential for massive losses.

BND does not allow partial share purchases or automatic interest income reinvestments.

This ETF is passively managed too.

Other Fund Comparisons

I have written many other investment fund comparison reviews. I highly recommend reading any of the following for more information.

• VFIAX vs VOO
• VFIAX vs FXAIX
• VTSAX vs VFIAX
• SWPPX vs VTSAX

For more investing information, I suggest subscribing to the Wall Street Journal. They have tremendous information and reporting!

VBTLX vs BND: Final Thoughts

VBTLX and BND are both Vanguard total market bond funds. The biggest differences are expense ratios, interest income reinvestment, and minimum investments.

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VBTLX vs BND FAQ

What’s the difference between VBTLX and BND?

VBTLX is a total bond market index fund offered by Vanguard, and BND is a total bond market ETF offered by Vanguard.

Is VBTLX or BND Better?

The returns will be the same because they have the same underlying holdings. However, BND has no minimum investment and a lower expense ratio.

What are the Holdings of VBTLX and BND?

VBTLX and BND track the total bond market. They have large underlying holdings in government debt.

How do I Buy VBTLX or BND?

You can buy VBTLX or BND on any brokerage website. I prefer to use Vanguard.