VGLT vs. TLT: Which Treasury Bond ETF Is the Better Buy?

The Vanguard Long-Term Treasury ETF (NASDAQ:VGLT) carries a significantly lower expense ratio than the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) for investors seeking exposure to long-dated government debt.

These two funds are staples for fixed-income investors looking to hedge against stock market volatility or take advantage of falling interest rates. While both focus on the long end of the U.S. Treasury curve, subtle differences in cost and the specific maturity ranges of the underlying bonds could meaningfully impact long-term portfolio results for income-focused investors.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

VGLT is notably cheaper, with an expense ratio of 0.03% compared to TLT’s 0.15%. Despite this cost gap, both funds provide a nearly-identical divided yield of roughly 4.6%.

Performance & risk comparison

What's inside

VGLT is a fixed income fund that tracks the Bloomberg U.S. Long Treasury Index -- which holds Treasuries with maturities of 10+ years. The fund, which was launched in 2009, manages 99 holdings and pays a roughly 4.6% dividend yield. Its primary goal is providing steady income by maintaining a dollar-weighted average maturity of 10 to 25 years. The fund has an average effective maturity of 21.8 years -- meaning the bonds it holds are expected to be fully repaid, on average, in that time frame. The fund’s average duration -- a measure of how sensitive the fund's price is to changes in interest rates -- is 13.8 years (a longer duration means bigger price swings when rates move).

TLT also focuses on U.S. Treasuries, but tracks the ICE U.S. Treasury 20+ Year Bond Index. Launched in 2002, the fund holds 46 different Treasury bonds and pays a roughly 4.6% dividend. The fund has an average effective maturity of 26.1 years and an average duration of 15.9 years. By focusing exclusively on maturities beyond two decades, this fund tends to be more sensitive to interest rate changes than shorter-duration bond products.

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What this means for investors

At first glance, VGLT and TLT look very similar -- both hold long-dated U.S. Treasuries and offer a roughly 4.6% dividend yield. But the differences that matter most to long-term investors are hiding beneath the surface.

The most obvious edge goes to VGLT: its expense ratio of 0.03% is five times cheaper than TLT's 0.15%. That gap may sound small, but in bond investing -- where returns are more modest than equities -- cost efficiency is one of the few variables investors can actually control. Over a decade or more, that difference in fees can compound meaningfully.

There's also a meaningful distinction in how these funds are constructed. VGLT holds bonds with 10+ year maturities, while TLT focuses exclusively on maturities beyond 20 years. That longer average duration makes TLT more sensitive to interest rate movements -- which cuts both ways. When rates fall, TLT can deliver bigger price gains. When rates rise, it tends to fall harder.

Both funds serve the same core purpose -- providing income and acting as a counterweight to stock market volatility. But for buy-and-hold investors who prioritize cost efficiency and slightly lower interest rate risk, VGLT makes a compelling case as the better long-term choice.

Andy Gould has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.