Why the Vanguard Total Bond Market ETF Is a Good Choice to Diversify Your Portfolio

Core Insights - Bond investments typically do not outperform stocks but provide peace of mind and steady income [1] - Vanguard Total Bond Market ETF (BND) is recommended for retail investors seeking to diversify their portfolios with a low expense ratio and access to a wide range of high-quality bonds [2] - Recent bond market conditions have been challenging, with the Vanguard ETF showing negative annualized returns over the past five years, including a significant decline in 2022 [3] Performance and Outlook - The Vanguard Total Bond Market ETF achieved a total return of 6.7% over the past year, which, while lower than the S&P 500's 15.8% gain, is still a solid return for fixed-income investments [4] - Vanguard forecasts average annualized returns for U.S. bonds to be in the range of 3.8% to 4.8% over the next decade, compared to slightly better returns of 4% to 5% for U.S. equities [5] Risk Mitigation - Adding bond investments can help cushion portfolios against potential risks associated with the AI sector, which may be experiencing a bubble [7] - Despite the potential benefits, bond ETFs are not risk-free, as bond prices can decline with rising interest rates or deteriorating credit quality [8]