More Tools to Build a Bond Ladder
Vanguard aims to launch a line of target-maturity corporate bond ETFs.
The market for exchange-traded funds (ETFs) that help build bond ladders is growing. Bond laddering is a popular investing technique that staggers maturities across multiple bonds, or bond ETFs, in order to create a consistent income stream and minimize the impact of interest rate swings.
Now, low-cost fund giant Vanguard has filed paperwork with regulators to launch a line of target-maturity corporate bond ETFs.
They'll go up against iShares' line of iBonds, Invesco's BulletShares and State Street's MyIncome ETFs. Vanguard hopes to launch the funds in early 2026. (Investors should not confuse the firm's target maturity ETFs with its more familiar target-date funds, which are managed to become more conservative over time.)
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In a traditional bond fund, a maturing or expiring bond gets replaced with a new one, and the fund lives on. These target-maturity ETFs instead hold a collection of bonds that all mature in the same year. Once the bonds mature, the fund ends and pays out its net asset value to its investors.
Perryne Desai, a Vanguard product manager, says investors can use the ETFs to save for future expenses such as a down payment on a home or college tuition, or use them to construct bond ladders.
The Vanguard filings are for corporate bond funds with maturities from 2027 to 2036. Each will be based on a bond index from ICE, known legally as the Intercontinental Exchange. Holdings are restricted to investment- grade corporates, and constituent weightings are limited for diversification. The funds will liquidate around December 15 of each year.
A lower-cost alternative
Vanguard says it plans to offer the funds with an expense ratio of 0.08%. That's less than the 0.10% charged by iShares and Invesco and the 0.15% charged by State Street, according to fund tracker Morningstar.
Jeff DeMaso, who publishes the Vanguard Investment Adviser newsletter, says the small cost edge that the Vanguard funds deliver may not be enough to persuade investors to switch from the iBonds or BulletShares offerings, but it is something to think about if you're considering setting up a new ladder.
We currently recommend Invesco BulletShares 2026 Corporate Bond (BSCQ), a member of the Kiplinger ETF 20, the list of our favorite exchange-traded funds.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
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