Summary: Buy I-Bonds up to the $10,000/year purchase limit before looking at other bonds. Aside from municipal bonds, other bonds and bond funds are not good investments without an IRA.
I talked about what bonds are and different types of bonds already, and I recommend reviewing that article first. Here, I will discuss specific bonds and bond funds in more depth. This article assumes that the investment is being done in a regular (taxable) account rather than an IRA.
Just as with stock funds, Vanguard’s bond funds offer a discounted Admiral version of each fund for investing $10,000 or more.
Important Review: Expense Ratios
The expense ratio is the percentage of your investment charged as a fee. Expense ratios rarely change, though Vanguard funds’ expense ratios have decreased slightly. Low expense ratios are the most predictive indicator of future performance, and therefore paramount to long term returns. In bonds, expense ratios are a much larger percentage of return, because bonds grow less than stocks.