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Personal Finance

The Best Taxable-Bond Funds

Here are the highest-rated mutual funds and ETFs across a series of Morningstar’s taxable fixed-income categories.

Too many things in life that should be easy for adults aren’t. Opening medicine bottles with “child safety” caps, for instance. Detaching toys from their viselike packaging on Christmas morning. Getting teenage boys to do their laundry (maybe that’s just my teenage boys).

Choosing a bond fund should be on that list, too.

Investors rely on bonds for many reasons: funding short-term goals, diversifying an equity-heavy portfolio, or generating income or providing inflation protection during retirement, to name a few. Before getting down to choosing a bond fund, step back and consider why you need one: What role is it playing for you?

Once you know what need it's filling, figure out whether a taxable-bond fund or municipal-bond fund is a better choice for you. If you’re investing in a taxable account, municipal bonds might be the better choice on an aftertax basis. We’ll cover best practices for muni-bond fund investing and shares some picks in an upcoming article.

If you’re investing via a tax-deferred account like an IRA or 401(k), however, a taxable-bond fund will be the better match. Some of the issues to wrangle are covered in our checklist for taxable-bond investors, including what levels of credit and interest-rate risk you’re comfortable with and whether you want just one core bond fund or several supplementary holdings.

Once you’ve decided on some of the big issues, you can begin the search for a fund that meets your needs. We suggest that you start your quest with Morningstar Medalist Funds. These funds are those that we think are most likely to outperform over a full market cycle thanks to their competitive advantages such as low costs and solid processes.

These taxable-bond funds all have at least one share class that earns our highest rating--a Morningstar Fund Analyst Rating of Gold--as of this writing. They’re great starting points for your research. Premium Members have access to a complete list of all Medalist Funds and ETFs.

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