VTI vs BND: Understanding the Key Differences
LAST UPDATED: April 22, 2023 | By Conrad Golly
If you’re new to investing, you may be wondering what the difference is between VTI and BND.
These two funds are popular choices for investors looking to diversify their portfolios, but they have very different investment strategies.
VTI vs BND:
VTI and BND are both exchange-traded funds (ETFs) offered by Vanguard, one of the largest investment companies in the world. VTI is an ETF that tracks the performance of the entire U.S. stock market, while BND is an ETF that tracks the performance of the U.S. bond market.
While both funds are designed to provide investors with exposure to a broad range of assets, they have different risk profiles and potential returns.
Investing in VTI means you’re investing in the entire U.S. stock market, which includes large-cap, mid-cap, and small-cap stocks.
This means that your investment is spread across a wide range of companies and industries, which can help reduce your risk.
On the other hand, investing in BND means you’re investing in U.S. bonds, which are generally considered to be less risky than stocks but also offer lower potential returns.
I will break down the key differences between VTI and BND and help you decide which one is right for you, maybe even find some better option at the end of the article!
What is VTI?
VTI or Vanguard Total Stock Market Index Fund ETF is an exchange-traded fund that gives investors exposure to the entire U.S. equity market.
It is designed to track the performance of the CRSP US Total Market Index, which includes small, mid, and large-cap stocks. VTI is a popular choice for investors looking for a low-cost, diversified investment option.
One of the advantages of VTI is its low expense ratio of 0.03%. This means that for every $10,000 invested, investors pay only $3 in fees annually.
Additionally, VTI has a high exposure to the technology sector, which has been one of the best-performing sectors in recent years.
As of April 2023, the technology sector makes up around 28% of VTI’s portfolio.
VTI is also known for its high liquidity, which makes it easy to buy and sell shares.
The fund has a large number of outstanding shares, and its average daily trading volume is high, which means that investors can easily buy and sell shares without significantly affecting the market price.
VTI is a great option for investors looking for broad exposure to the U.S. equity market at a low cost.
Its diversification across small, mid, and large-cap stocks, combined with its high liquidity and exposure to the technology sector, make it a popular choice among investors.
What is BND?
As I’m comparing VTI and BND, it’s important to understand what BND is. BND is a Vanguard Intermediate-Term Bond fund.
This means that BND invests in a diversified portfolio of high-quality bonds issued by the US government, corporations, and other entities.
The goal of BND is to provide investors with a low-cost way to invest in the US bond market.
BND is designed to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which is a widely recognized benchmark for the US bond market.
One of the benefits of investing in BND is that it provides investors with exposure to a broad range of bonds. BND invests in bonds with a range of maturities, from short-term to long-term.
This helps to spread out the risk and reduce the impact of any one bond defaulting.
BND has a low expense ratio of 0.03%, which means that investors pay only $3 in fees for every $10,000 invested.
This is one of the lowest expense ratios in the bond fund category, making it an attractive option for investors who want to keep their costs low.
Differences between VTI vs BND
As an investor, it’s important to understand the differences between VTI and BND before deciding which one to invest in.
Here are some key differences between the two:
Investment Objectives VTI vs BND
VTI seeks to track the performance of the CRSP US Total Market Index, which includes all common stocks listed on the New York Stock Exchange, American Stock Exchange, Nasdaq National Market, and Nasdaq Small Cap exchanges.
BND, on the other hand, seeks to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which includes investment-grade bonds issued by the U.S. government, corporations, and mortgage-backed securities.
Asset Allocation VTI vs BND
VTI is an equity fund, which means it invests in stocks. As of March 31, 2023, VTI’s top holdings were Apple, Microsoft, Amazon, and Facebook.
BND, on the other hand, is a bond fund, which means it invests in bonds. As of March 31, 2023, BND’s top holdings were U.S. Treasury Bonds, Mortgage-Backed Securities, and Corporate Bonds.
Expense Ratio VTI vs BND
Both VTI and BND have the same expense ratio of 0.03%. This means that for every $10,000 invested, investors will pay $3 in fees annually.
Historical Performance VTI vs BND
Over the past ten years, VTI has provided higher returns than BND.
According to Morningstar, VTI has had an average annual return of 18.43% compared to BND’s average annual return of 3.17%.
It’s important to note that past performance is not indicative of future results. Investors should always do their own research and consult with a financial advisor before making any investment decisions.
VTI vs BND: Which One Should You Choose?
When deciding between VTI and BND, it’s important to consider your investment goals, risk tolerance, and investment horizon.
Investment Goals VTI vs BND
If your goal is to invest in the stock market, then VTI is the better choice. VTI is a US Stocks Large Blend fund and provides exposure to the entire US stock market.
On the other hand, if your goal is to invest in bonds, then BND is the better choice. BND is a Bond Total US Bond Market fund and provides exposure to the entire US bond market.
Risk Tolerance VTI vs BND
Your risk tolerance is an important factor to consider when choosing between VTI and BND.
If you have a higher risk tolerance, then VTI may be the better choice for you. VTI is more volatile than BND but has the potential for higher returns.
If you have a lower risk tolerance, then BND may be the better choice for you. BND is less volatile than VTI but has lower potential returns.
Investment Horizon VTI vs BND
Your investment horizon is the length of time you plan to hold your investments. If you have a longer investment horizon, then VTI may be the better choice for you.
VTI has historically provided higher returns over the long term. If you have a shorter investment horizon, then BND may be the better choice for you. BND provides stability and income and is less affected by short-term market fluctuations.
Ultimately, the decision between VTI and BND comes down to your individual investment goals, risk tolerance, and investment horizon.
It’s important to do your own research and consult with a financial advisor before making any investment decisions.
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