5 Great Fixed-Income Funds to Buy for 2025

Not everyone has the risk tolerance to go all in on stocks. A 100% equity portfolio can deliver strong long-term returns, but it also comes with severe fluctuations along the way.

That kind of volatility stems from what’s known as market risk, which is the possibility that your investments decline simply because investor sentiment shifts, regardless of company fundamentals.

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But market risk isn’t the only way to earn returns above the risk-free rate. Fixed-income investments like bonds offer another path. Instead of relying on the ups and downs of the stock market, bondholders earn risk premiums through different channels.

One of these is the credit risk premium. Investors get compensated for the chance that a bond issuer might fail to pay them back on time or at all. The greater the risk of default, the higher the yield investors typically demand as compensation.

Another source of return is the term premium. This is the added yield investors receive for lending money over longer periods. All else equal, the longer a bond’s maturity, the higher its yield tends to be, to account for greater uncertainty over time.

By adjusting how much exposure you take to credit and maturity, you can shape a bond portfolio that matches your goals. And you do not need to buy individual bonds to do it. A wide range of professionally managed bond funds can do the work for you.

Here are five great fixed-income mutual funds and exchange-traded funds (ETFs) to buy in 2025:

Fund	Expense ratio	30-day SEC yield
Vanguard Total Bond Market Index Fund Admiral Shares (ticker: VBTLX)	0.04%	4.4%
Vanguard Ultra-Short-Term Tax-Exempt Fund Investor Shares (VWSTX)	0.17%	3.2%
Global X 1-3 Month T-Bill ETF (CLIP)	0.07%	4.2%
BondBloxx BBB Rated 1-5 Year Corporate Bond ETF (BBBS)	0.19%	4.7%
BondBloxx Private Credit CLO ETF (PCMM)	0.68%	7.3%

Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)

“The main benefit of bond funds for investors is convenience,” says Chris Tidmore, senior manager at Vanguard’s Investment Advisory Research Center. “Bond funds offer significant time savings over building and managing portfolios of individual bonds yourself and allow investors to build a broadly diversified bond portfolio with only a few funds.” Vanguard’s flagship bond mutual fund is VBTLX.

This fund tracks the Bloomberg U.S. Aggregate Float Adjusted Index, a broadly diversified benchmark of more than 11,300 domestic bonds. It spans government-issued Treasurys, agency mortgage-backed securities (MBS) and investment-grade corporate bonds of various maturities. The fund has intermediate interest rate sensitivity, with an average duration of 5.9 years, and pays a 4.4% 30-day SEC yield.

Vanguard Ultra-Short-Term Tax-Exempt Fund Investor Shares (VWSTX)

“Given the higher risks and costs associated with portfolios of individual bonds, and the time they take to manage, most investors are better served by low-cost mutual funds and ETFs,” Tidmore says. “This is particularly true in the case of municipal and corporate bonds, which are less liquid and harder to purchase than Treasury bonds.” For municipal bond exposure, Vanguard offers VWSTX.

The monthly distributions from VWSTX are exempt from federal personal income tax. The fund achieves this by owning mostly “A”- to “AAA”-rated municipal bonds, with a smaller allocation reserved for high-yield municipal bonds. Average duration for this fund is also low, at just 1.2 years, leading to minimal interest rate sensitivity. Investors can currently expect a 3.2% 30-day SEC yield.

[READ: 8 Rules for Managing Your 401(k) in a Recession]

Global X 1-3 Month T-Bill ETF (CLIP)

“Yields offered through investment-grade corporate and government bond securities have indeed been scaled back over the last year, but the income potential provided by some of these instruments is still trading at generous levels relative to the last 15 to 20 years,” says Robert Scrudato, director of options and income research at Global X ETFs. For example, CLIP is still paying a 4.2% 30-day SEC yield.

The yield on CLIP moves in line with prevailing short-term interest rates and currently sits near the low end of the federal funds rate range at 4.25% to 4.5%. This aligns with expectations after accounting for the fund’s 0.07% expense ratio. It is also highly liquid, with a tight 0.01% 40-day median bid-ask spread. Unlike the previous Vanguard bond funds, CLIP can be traded throughout the day like any stock.

BondBloxx BBB Rated 1-5 Year Corporate Bond ETF (BBBS)

The over-the-counter nature of the fixed-income market can create difficulties for retail investors trying a do-it-yourself approach to bond investing. “Picking individual bonds is not easy or cost efficient for most retail investors,” says JoAnne Bianco, partner and senior investment strategist at BondBloxx. “Plus, it is more difficult for retail investors to build well-diversified portfolios of bonds themselves.”

This is especially true for corporate bonds, which tend to be less liquid than Treasurys. Investors looking to target this segment of the fixed-income market can outsource the work to an ETF like BBBS. This ETF tracks the Bloomberg U.S. Corporate BBB 1-5 Year Index. It has an average duration of 2.7 years and pays a 4.7% 30-day SEC yield. BBBS charges a reasonable 0.19% expense ratio.

BondBloxx Private Credit CLO ETF (PCMM)

“PCMM holds loans of middle-market companies, an asset class that has not been traditionally accessible to retail investors,” Bianco explains. “In one trade, PCMM provides access to a private credit strategy with the transparency, liquidity and cost efficiency of an ETF.” Unlike closed-end funds or interval funds, PCMM trades close to its net asset value and does not have redemption windows.

PCMM’s strategy is built around collateralized loan obligations (CLOs), which are portfolios of private loans bundled together. Despite the similarity in name, CLOs are not the same as the collateralized debt obligations that played a central role in the 2008 financial crisis. CLOs are not backed by subprime mortgages and have historically shown more resilience. PCMM pays a 7.3% 30-day SEC yield.

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5 Great Fixed-Income Funds to Buy for 2025 originally appeared on usnews.com

Update 04/22/25: This story was previously published at an earlier date and has been updated with new information.