Skip to headerSkip to main contentSkip to footer
Get our Free E-newslettersGet our Free E-newsletters
Kiplinger logoLink to homepage
Get our Free E-newslettersGet our Free E-newsletters
Subscribe to Kiplinger
Subscribe to Kiplinger
Save up to 76%
Subscribe
Subscribe to Kiplinger
  • Store
  • Home
  • Investing
  • Retirement
  • Taxes
  • Personal Finance
  • Your Business
  • Wealth Creation
    • Podcasts
    • Economic Outlooks
    • Tools
    • Kiplinger's Personal Finance Magazine
    • The Kiplinger Letter
    • The Kiplinger Tax Letter
    • Kiplinger's Investing for Income
    • Kiplinger's Retirement Report
    • Store
    • Manage My E-Newsletters
    • My Subscriptions
Skip advert
  • Home
  • investing
investing

6 Bond Funds to Boost Your Income

In part because of the election of Donald Trump, the yield on U.S.

by: James K. Glassman
February 28, 2017

Thinkstock

Skip advert

In part because of the election of Donald Trump, the yield on U.S. bonds—the percentage of your investment you get for holding them—has soared. For bond investors who seek relatively high income without taking inordinate risks, that spells opportunity.

You should be gradually filling out your long-term portfolio with more debt. Consider my eclectic mix of bond funds here, including mutual funds and exchange-traded funds that focus on investment-grade bonds, high-yielding "junk" bonds or tax-free municipal bonds.

Pick a mix of our six to match your desire for yield and tolerance for risk.

(All yields and prices are as of December 31.)

Skip advert
Skip advert
Skip advert

1 of 6

iShares iBonds Corporate ETF

Skip advert
  • Symbol: IBDM
  • Price: $25
  • Yield: 2.7%
  • Expense ratio: 0.10%

One way to hedge against interest rate risk is to buy bonds that mature at intervals, a strategy called laddering. Say you buy five bonds, with the first maturing at the end of 2017, the second at the end of 2018 and so on. As each bond matures, you get your principal back and reinvest it in a new bond that matures five years later. That way, if rates rise, the last bond you purchase will carry a higher yield.

Some fund sponsors make laddering easier. For example, BlackRock offers exchange-traded funds with portfolios of corporate bonds that all mature in a specific year. One such fund is iShares iBonds Dec 2021 Term Corporate ETF. The fund, which yields 2.7% and costs just 0.10% annually, is a member of the Kiplinger ETF 20. Owning similar ETFs up and down a ladder of years can mitigate rate risk.

 

  • 27 Best Stocks to Own in 2017
Skip advert
Skip advert
Skip advert

2 of 6

SPDR Bloomberg Barclays High-Yield Bond

Skip advert
  • Symbol: JNK
  • Price: $36
  • Yield: 5.7%
  • Expense ratio: 0.40%

Deciding whose bonds to buy is also tricky. U.S. government bonds are relatively straightforward, but corporate bonds carry the risk of default. The riskier the bond, the higher the rate a corporation must pay to entice you to own it. You should buy high-yielding corporate debt—known as junk bonds—only through a diversified fund, such as SPDR Bloomberg Barclays High-Yield Bond ETF.

Skip advert
Skip advert
Skip advert

3 of 6

Vanguard High-Yield Corporate

Skip advert
  • Symbol: VWEHX
  • Yield: 5.0%
  • Expense ratio: 0.23%

Another junk bond fund to consider is Vanguard High-Yield Corporate, a member of the Kiplinger 25, is one of the tamer funds in this junk category, opting largely for debt just below investment grade. But with less risk come lower returns than the SPDR ETF.

 

  • 8 Stocks to Benefit from Rising Interest Rates
Skip advert
Skip advert
Skip advert

4 of 6

Fidelity Corporate Bond

Skip advert

Symbol: FCBFX

  • Yield: 3.2%
  • Expense ratio: 0.45%

Investment-grade bonds carry less risk but also pay less. Fidelity Corporate Bond has a portfolio with a median maturity of seven years and holds nearly all single-A- or triple-B-rated bonds. That seems to be the sweet spot in the market, without too much interest rate risk or credit risk (the chance that a bond’s issuer will default).

Skip advert
Skip advert
Skip advert

5 of 6

Fidelity Investment Grade Bond

Skip advert

Symbol: FBNDX

  • Yield: 2.2%
  • Expense ratio: 0.80%

Federal agency bonds, such as those issued by the Tennessee Valley Authority, are supersafe and yield a bit more than Treasuries. Fidelity Investment Grade Bond is a mutual fund that leavens its mixture of Treasuries and corporate bonds with some excellent agency debt.

 

  • Best Ways to Invest in Bonds Now
Skip advert
Skip advert
Skip advert

6 of 6

T. Rowe Price Tax Free Income

Skip advert

Symbol: PRTAX

  • Yield: 2.3%
  • Expense ratio: 0.52%

Municipal bonds, issued mainly by city and state governments and their agencies, have default risk, too, but less than with corporate IOUs. Plus, muni prices tend to decline less than Treasury prices if rates rise because higher inflation provides a better environment for states to raise tax dollars to fund the bonds. The advantage of munis is that their interest payments are generally free of federal income taxes and may be free of state and local taxes as well.

A good mutual fund choice for muni investors is T. Rowe Price Tax-Free Income, which combines high credit quality with maturities averaging in the 15-to-20-year range. Its yield of 2.3% translates to 4.0% for an investor in the top federal tax bracket.

 

  • You'll Still Make Money in Bonds
Skip advert
Skip advert
Skip advert
  • ETFs
  • mutual funds
  • investing
Share via EmailShare on FacebookShare on TwitterShare on LinkedIn
Skip advert
Skip advert
Skip advert
Skip advert

Recommended

Protect Your Portfolio: 10 Defensive ETFs
ETFs

Protect Your Portfolio: 10 Defensive ETFs

Want to prevent a further portfolio beating across the rest of 2022? These defensive ETFs can provide some market cover.
July 1, 2022
Is the Stock Market Closed for the Fourth of July in 2022?
Markets

Is the Stock Market Closed for the Fourth of July in 2022?

Independence Day falls on a Monday in 2022, so the bond and stock markets will enjoy a long holiday weekend. Here's a look at the markets' holiday hou…
July 1, 2022
Top Bear Market Tips from 10 Financial Advisers
investing

Top Bear Market Tips from 10 Financial Advisers

When a bull market turns into a bear market, it can be hard to know what to do. Take comfort in the guidance of 10 financial professionals.
June 30, 2022
Move Over ETFs: Direct Indexing Is an Investment Strategy Worth Paying Attention to
investing

Move Over ETFs: Direct Indexing Is an Investment Strategy Worth Paying Attention to

More flexibility, more control, the potential for higher returns and tax-reducing strategies: With pros like that, could direct indexing be right for …
June 25, 2022

Most Popular

5 Best Dow Dividend Stocks to Buy Now
blue chip stocks

5 Best Dow Dividend Stocks to Buy Now

This mini-portfolio of blue-chip dividend payers is well-positioned to both generate income and hold up to headwinds for the rest of 2022.
June 27, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Top Bear Market Tips from 10 Financial Advisers
investing

Top Bear Market Tips from 10 Financial Advisers

When a bull market turns into a bear market, it can be hard to know what to do. Take comfort in the guidance of 10 financial professionals.
June 30, 2022
  • Customer Service
  • About Us
  • Advertise With Us (PDF)
  • Privacy Policy
  • Cookie Policy
  • Kiplinger Careers
  • Accessibility
  • Privacy Preferences

Subscribe to Kiplinger's Personal Finance

Be a smarter, better informed investor.
Save up to 76%Subscribe to Kiplinger's Personal Finance
Do Not Sell My Information

Kiplinger is part of Future plc, an international media group and leading digital publisher. Visit our corporate site www.futureplc.com
© Future US LLC, 10th floor, 1100 13th Street NW, Washington, DC 20005. All rights reserved.

Follow us on InstagramFollow us on FacebookFollow us on TwitterConnect on LinkedInConnect on YouTube