TLT vs BND: Which Bond ETF Reigns Supreme?
LAST UPDATED: April 14, 2023 | By Conrad Golly
As an investor, I am always looking for the best ways to allocate my portfolio.
Two popular bond ETFs are BND and TLT.
Both ETFs have their own unique features and advantages, but which one is better?
TLT vs BND: When comparing BND and TLT, it is important to consider their performance, volatility, and expense ratios. BND has a lower expense ratio of 0.03% compared to TLT’s 0.15%.
TLT has a higher compound annual growth rate (CAGR) of 7.87% compared to BND’s 4.19%.
On the other hand, TLT is also more volatile, with an annual volatility of 14.18% compared to BND’s 3.72%. These factors can have a significant impact on an investor’s returns and risk tolerance.
So, which bond ETF is better?
The answer ultimately depends on an investor’s individual goals and risk tolerance.
In this article, we will take a closer look at the similarities and differences between BND and TLT to help you make an informed decision on which one may be the best fit for your portfolio.
Table of Contents
TLT vs BND: Understanding the Basics
What is TLT?
TLT is an exchange-traded fund (ETF) that tracks the performance of long-term U.S. Treasury bonds.
These bonds have a maturity of 20 years or more, making them a popular choice for investors looking for a safe haven asset.
What is BND?
BND is also an ETF, but it tracks the performance of the entire U.S. investment-grade bond market. This includes a mix of government, corporate, and mortgage-backed bonds, making it a more diversified option than TLT.
Key Differences Between TLT and BND
One of the most significant differences between TLT and BND is the type of bonds they hold.
TLT focuses solely on long-term U.S. Treasury bonds, while BND holds a mix of investment-grade bonds.
Another key difference is their expense ratios. TLT has a higher expense ratio of 0.15%, while BND’s expense ratio is only 0.03%. This means that BND is more cost-effective for investors.
Finally, TLT is more volatile than BND.
TLT has an annual volatility of 14.18%, while BND’s annual volatility is only 3.72%. This means that TLT can experience higher maximum drawdowns than BND, making it a riskier option.
Overall, both TLT and BND have their own unique advantages and disadvantages.
It’s important to carefully consider your investment goals and risk tolerance before choosing between these two ETFs.
Performance Comparison
Historical Performance of TLT vs BND
When it comes to historical performance, TLT has outperformed BND.
TLT’s compound annual growth rate (CAGR) is 7.87%, which is significantly higher than BND’s CAGR of only 4.19%.
However, it’s important to note that TLT is also a lot more volatile than BND.
TLT’s annual volatility is 14.18%, while BND’s is only 3.72%. This leads TLT to experience much higher maximum drawdowns than BND.
On the other hand, PortfoliosLab reports that TLT has a higher expense ratio than BND.
TLT’s expense ratio is 0.15%, while BND’s expense ratio is only 0.03%. This means that BND has lower costs, which can be an important factor for investors to consider.
Recent Performance of TLT vs BND
Looking at recent performance, it’s important to note that the bond market has been volatile in recent years.
According to ETF.com, both TLT and BND experienced negative returns in 2018. However, TLT performed slightly better than BND, with a return of -1.76% compared to BND’s return of -1.84%.
In 2019, both TLT and BND had positive returns, but TLT outperformed BND once again.
TLT had a return of 15.84%, while BND had a return of 8.71%. This trend continued in 2020, with TLT having a return of 18.87% compared to BND’s return of 7.51%.
It’s worth noting that past performance is not indicative of future results, and investors should consider a variety of factors when making investment decisions.
Risk and Volatility
Risk of Investing in TLT vs BND
When it comes to investing in bonds, risk is an important factor to consider. BND and TLT have different levels of risk associated with them.
As a total bond market ETF, BND invests in a wide range of bonds, including corporate bonds, government bonds, and mortgage-backed securities.
This diversification helps to spread out the risk associated with investing in bonds.
On the other hand, TLT invests solely in long-term U.S. Treasury bonds. While these bonds are considered to be some of the safest investments available, they are still subject to interest rate risk.
If interest rates rise, the value of TLT will decrease.
Volatility of TLT vs BND
Volatility is another important factor to consider when investing in bonds. Volatility refers to the degree of variation of a bond’s price over time.
A more volatile bond will have a greater degree of price variation than a less volatile bond.
According to PortfoliosLab, the volatility of TLT is currently NaN%, which is lower than the volatility of BND at NaN%.
However, it’s important to note that volatility can change over time and is influenced by a variety of factors.
Investors who are more risk-averse may prefer BND due to its lower volatility. However, investors who are willing to take on more risk in exchange for potentially higher returns may prefer TLT.
Costs and Fees
As an investor, it’s important to consider the costs and fees of any investment product before making a decision. In this section, I’ll compare the costs and fees of TLT and BND.
Expense Ratios of TLT vs BND
The expense ratio is the annual fee charged by the fund to cover its operating expenses. When comparing TLT and BND, it’s important to note that TLT has a higher expense ratio than BND.
According to Morningstar, BND has an expense ratio of only 0.03%, while TLT has an expense ratio of 0.15%.
This means that for every $10,000 invested, you would pay $3 in fees for BND and $15 in fees for TLT.
While TLT’s expense ratio is still below the industry average, it’s important to consider the impact that the higher expense ratio can have on your portfolio’s returns over time.
For example, if you invested $10,000 in TLT and $10,000 in BND, assuming a 5% annual return and holding the investments for 10 years, you would end up with $16,386 in TLT and $16,464 in BND.
This is a difference of only $78, but it’s important to consider that this difference could be even greater over a longer investment horizon.
Other Costs and Fees of TLT vs BND
While expense ratios are an important consideration, there are other costs and fees that investors should be aware of when comparing TLT and BND.
For example, both funds may charge fees for buying and selling shares, which can be a consideration if you plan to trade frequently.
Additionally, both funds may have other costs associated with them, such as taxes, which can impact your overall returns.
When considering other costs and fees, it’s important to read the fund’s prospectus and understand all of the potential costs associated with the investment.
This can include costs such as bid-ask spreads, which can impact the price you pay for shares, and taxes on dividends, which can impact your overall returns.
Which is Better: TLT or BND?
As an investor, choosing between TLT and BND can be a bit of a challenge.
Both are bond ETFs that offer exposure to the US bond market, but they have some key differences that can make one more suitable for your portfolio than the other.
In this section, we’ll take a closer look at the factors to consider when choosing between TLT and BND, as well as the pros and cons of each.
Factors to Consider When Choosing Between TLT and BND
When deciding between TLT and BND, there are a few key factors to consider:
- Investment Objective: TLT and BND have different investment objectives. TLT focuses on long-term US Treasuries, while BND covers the entire US bond market. If you’re looking for exposure to a specific segment of the bond market, TLT may be the better choice. If you want broad exposure to the entire bond market, BND is likely a better fit.
- Performance: TLT has historically outperformed BND in terms of compound annual growth rate (CAGR), but it is also more volatile. If you’re willing to take on more risk for potential higher returns, TLT may be the better choice. If you prefer a more stable investment, BND may be a better fit.
- Expense Ratio: TLT has a higher expense ratio than BND, which can eat into your returns over time. If you’re looking to minimize expenses, BND may be the better choice.
TLT vs BND: Pros and Cons
Here are some of the pros and cons of each ETF:
| TLT | BND |
|---|---|
| Pros: | Pros: |
| – Higher potential returns | – Lower volatility |
| – Exposure to long-term US Treasuries | – Broad exposure to the entire US bond market |
| Cons: | Cons: |
| – Higher expense ratio | – Lower potential returns |
| – More volatile | – Less focused than TLT |
The choice between TLT and BND will depend on your investment objective, risk tolerance, and other factors specific to your portfolio.
It’s important to do your own research and consult with a financial advisor before making any investment decisions.
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