Opinion: The 9 best Vanguard funds for retirees
Read: To get rich investing, the power of time beats a lucky stock pick
Vanguard has more than $7 trillion under its management and is the only mutual fund company with a financial structure built to benefit the shareholders in its mutual funds.
The company’s funds are known for low expenses and the lower tax exposure that comes from low turnover. It should go without saying that Vanguard funds are no-load funds. No sales commission, no sales pressure.
From Vanguard’s offering of excellent funds, here are nine that I like for retirees.
Vanguard Short-Term Investment Grade Fund VFSUX,
This is the first fund my wife and I invest in every year. In January, we make our annual withdrawal from long-term investments to cover our expenses for the year ahead. This fund is also where we keep our emergency cash.
Because this fund holds no stocks, our finances are remarkably emotion-free. No matter what’s happening in the stock market at any given moment, we know that won’t affect us until the following calendar year. If you’ve never tried managing your money like this, I recommend it.
You won’t get rich in this fund, but you’ll probably earn nearly 100 times as much as you’d get in a typical bank savings account paying (this is really disgusting!) 0.01% interest.
Over the past 15 years, this fund appreciated at 3.27%.
Read: It’s never too late to have a happy retirement
Balanced funds: boringly beautiful
Balanced funds hold both stocks and bonds. Over the years their shareholders are statistically likely to have above-average success as investors.
Why is that? Not because the funds themselves have any magic. It’s because the combination of growth and stability make you more likely to be content to leave your money where it is instead of trying to figure out when to buy and when to sell.
None of the following eight balanced funds is designed to normally hold much more than about 60% in equities. That means they aren’t likely to suffer the sort of major losses of all-equity funds.
Any one of these could make a good one-fund portfolio for a retiree. But don’t choose at random; the differences matter.
Vanguard Target Retirement 2015 VTXVX,
If you’re already retired, this fund of funds has your back. With an equity stake of only about 35% and the diversification of (indirectly) owning more than 10,000 stocks and 24,000 bonds, you just won’t go very far wrong. You’ll get some growth plus a good measure of stability.
If you like the target date concept but want a bit more equity exposure, it’s easy to pick a variation focused on a later year such as 2020 or 2025.
Vanguard LifeStrategy Funds
These funds of funds come in varying combinations of equity exposure, from 20% to 80%, though I’m excluding the most aggressive one from this discussion. All the bonds in these funds, by the way, are investment grade. No junk.
LifeStrategy Income Fund VASIX, typically holds only about 20% of its portfolio in equity funds, with the rest in bonds, perhaps a good fit for investors with ample resources (more than they think they’ll ever need, in other words) and those who are very skittish about the stock market.
LifeStrategy Conservative Growth VSCGX, doubles that equity stake to about 40%, perhaps the right choice for conservative retirees who want some growth but are not willing to go very far out on a limb to get it.
LifeStrategy Moderate Growth VSMGX, is very similar, but with a 60/40 split of equities and bonds. This provides more growth, although still without much excitement.
Two funds for retirees who don’t know a lot about investing
Often over the past 20 years I have recommended Vanguard Wellesley Income Fund VWIAX, and/or Vanguard Wellington Fund VWENX, .
For conservative retirees that I don’t know well, Wellesley has become what I regard as my best piece of advice.
Wellesley has been taking good care of investors since 1970. Its portfolio is normally 40% in equities, 60% in bonds. This is a low-cost actively managed fund, holding about 70 large-cap stocks (mostly value stocks) and about 1,300 bonds.
For those who are less conservative, Wellington is my go-to suggestion, especially for people who value a very long track record.
Wellington has been in business since 1929 and was the industry’s very first balanced fund.
Wellington’s typical 60/40 split of equities and bonds mirrors the way the trustees of many large pension funds invest. They know they need reliable long-term growth and that their portfolios must, in all circumstances, be able to pay their pensioners.
Wellington is actively managed, with about 60 large-cap stocks and about 1,100 bonds.
Note: My wife and I prefer an overall 50/50 allocation of equities and bonds. If that appeals to you, you could achieve that by splitting your money evenly between Wellesley and Wellington.
Two other Vanguard balanced funds are worth considering.
Vanguard Balanced Index Fund VBIAX, is index driven, holding about 60% of its portfolio in 3,300 U.S. mostly growth-oriented stocks and the rest in about 10,700 bonds.
Vanguard Tax-Managed Balanced Fund VTMFX, is managed to minimize capital gains distributions and other taxable income, with a typical equity/bond split closer to 50/50. If you like that allocation along with lower tax bills, this fund could be for you.
Returns and risks
As you can see in the table below, levels of risk and return are indeed linked, but not always exactly what you would expect.
Funds are listed in order of their trailing 15-year compound annual growth rate (as of early October). For each, you’ll also see its performance during 2008, the worst calendar year for investors in a long time.
|Table 1: Vanguard funds compared|
|Target Retirement 2015*||5.99%||-24.1%|
|Short-Term Investment Grade||3.27%||-4.65%|
|*Statistics for this fund reflect a period when the fund had a more aggressive allocation than it does now.|
For more on these funds (plus four all-equity funds), check out a video presentation I made last year: “My 12 Favorite Vanguard Funds for Retirees.”
Vanguard Mutual Funds vs. Vanguard ETFs
Vanguard Mutual Funds vs. Vanguard ETFs: An Overview
Vanguard, one of the world's largest asset management firms with more than $7.2 trillion in assets under management as of Jan. 31, 2021. has become a popular choice for investors thanks to its long list of low-cost mutual funds. The Vanguard Group has also added a full menu of exchange-traded funds (ETFs) to its lineup, making the company one of the leading providers for both investment products.
Most Vanguard index mutual funds have a corresponding ETF. Both products are similar in management style and returns, but there are differences that can make each product more appropriate to different investors. Vanguard's products also have expense ratio differences between mutual fund/ETF pairs that must be examined to make the best choice.
- Mutual funds and ETFs offered by Vanguard are similar in management style and returns, but there are differences that can make each product more appropriate to different investors.
- ETFs carry more flexibility; they trade like stocks and can be bought and sold throughout the day.
- Mutual fund shares price only once per day, at the end of the trading day, but may benefit from economies of scale.
- While Vanguard fees are low in many of its products, ETFs tend to be more tax-efficient.
Vanguard Mutual Funds
The mutual fund versus ETF debate for Vanguard products in part comes down to how much is being invested. Moreover, for many of its mutual funds, Vanguard offers up to three classes of shares, Investor Shares, Admiral Shares, and Institutional Shares, each class offering progressively lower expense ratios, and thus better performance, in return for higher minimum investments.
Investor Shares in most Vanguard mutual funds require a $3,000 minimum initial investment, but some allow a $1,000 opening investment. For lower-cost Admiral Shares, the typical minimums are $3,000 for index funds, $50,000 for actively-managed funds, and $100,000 for certain sector-specific index funds. Institutional Shares are designed for institutional investors, and typically have a $5 million minimum.
Some funds with high transaction costs may have redemption fees ranging from 0.25% to 1.00% of the transaction amount, to discourage short-term speculative trading. Apart from this exception, Vanguard does not charge front-end or back-end sales loads or commissions.
ETFs carry more flexibility; they trade like stocks and can be bought and sold throughout the day, in transaction amounts as little as one share. As of Oct. 1, 2021, Vanguard offered 76 ETFs, with market prices per share ranging approximately from $51 to $407. In many cases, ETFs carry lower expense ratios than their mutual fund counterparts, but they must be traded in a brokerage account. ETF trades could come with brokerage commission fees.
When choosing between a mutual fund an an ETF, investors must consider a number of factors. One is whether the investor wants to pursue a buy-and-hold strategy or a trading strategy to help determine which product may be more advantageous. In general, ETFs may be more suitable than mutual funds for investors who seek lower minimum investment amounts and who want more control over transaction prices. However, investors who want to make regularly-scheduled automatic investments or withdrawals can do so with mutual funds, but not with ETFs.
The most significant difference between mutual funds and ETFs is the tradeability of shares. Mutual fund shares price only once per day, at the end of the trading day. Investors can place trade orders throughout the day, but the transaction is only completed at the end of the trading day.
The popular Vanguard 500 Index Fund and the Vanguard S&P 500 ETF provide good examples of the cost and trading differences that come with mutual funds and ETFs. Most mutual funds and ETFs in the Vanguard lineup follow a similar pattern.
Both ETFs and mutual funds are treated the same by the IRS in that investors pay capital gains taxes and taxes on dividend income. However, with generally fewer taxable events in ETFs, tax liability will typically be lower. ETF expense ratios are also typically lower than mutual fund fees. Although there are some options for mutual funds that don't require you to invest a lot of money at once, many mutual funds have higher initial investment requirements than ETFs.
The decision between a Vanguard mutual fund or a Vanguard ETF comes down to trading flexibility and the amount to be invested.
The Vanguard portfolio of investment choices as a whole is generally considered among the lowest cost and highest rated in the investment marketplace, and these products can make ideal choices for long- and short-term investors.
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IMPORTANT FEE INFORMATION: Vanguard funds may charge an annual account service fee of $20 for fund balances below $10,000. Vanguard offers other share classes of these funds with different investment minimums and expense ratios.
Please note: When comparing funds, please consider all important factors, including information pertaining to fund fees, fund features, and fund objectives. While funds may track an index, the indexes and strategies employed in seeking to achieve an investment goal may be different. Each fund's investment object and strategy and index tracked to achieve investment goals may differ. For new investors, funding investment minimums may be different.
ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund. ETFs are subject to market fluctuations of their underlying investments and may trade at a discount to NAV.
1. Fidelity beats Vanguard on expenses on 24 of 24 comparable stock and bond index funds, across all Vanguard share classes with a minimum investment of less than $3 billion. Total expense ratios as of December 30, 2020. Please consider other important factors including that each fund’s investment objectives, strategy, and index tracked to achieve its goals may differ, as well as each fund’s features and risks.
2. Fidelity now offers the Fidelity ZERO Large Cap Index Fund (FNILX), Fidelity ZERO Extended Market Index Fund (FZIPX), Fidelity ZERO Total Market Index Fund (FZROX) and Fidelity ZERO International Index Fund (FZILX) available to individual retail investors who purchase their shares through a Fidelity brokerage account.
3. Zero account minimums and zero account fees apply to retail brokerage accounts only. Expenses charged by investments (e.g., funds, managed accounts, and certain HSAs) and commissions, interest charges, or other expenses for transactions may still apply. See Fidelity.com/commissions for further details.
4. Expense ratio is the total annual fund operating expense ratio from the fund's most recent prospectus. As of March 1, 2019, Fidelity contractually lowered fund operating expense ratios on all comparable funds.
IMPORTANT FUND OBJECTIVE/COMPARISON INFORMATION: Fidelity® 500 Index Fund (tracks S&P 500®), Vanguard 500 Index Fund (tracks S&P 500®); Fidelity® Extended Market Index Fund (tracks DJ US Completion Total Stock Market Index), Vanguard Extended Market Index Fund (tracks S&P Completion Index); Fidelity® Total Market Index Fund (tracks Dow Jones U.S. Total Stock Market Index), Vanguard Total Stock Market Index Fund (tracks CRSP U.S. Total Market Index); Fidelity Large Cap Growth Index Fund (tracks Russell 1000 Growth Index), Vanguard Large Cap Growth Index (tracks CRSP US large Cap Growth Index); Fidelity Large Cap Value Index Fund (tracks Russell 1000 Value Index), Vanguard Large Cap Value Index Fund (tracks CRSP US Large Cap Value Index); Fidelity® Mid Cap Index Fund (tracks Russell Midcap® Index), Vanguard Mid-Cap Index Fund (tracks CRSP U.S. Mid Cap Index); Fidelity Mid Cap Growth Index Fund (tracks Russell Midcap Growth Index), Vanguard Mid-Cap Growth Index (tracks CRSP US Mid Cap Growth Index ), Fidelity Mid Cap Value Index Fund (tracks Russell Midcap Value Index), Vanguard Mid-Cap Value Index (tracks CRSP US Mid Cap Value Index), Fidelity Small Cap Index Fund (tracks Russell 2000 Index), Vanguard Small Cap Index Fund (tracks CRSP US Small Cap Index); Fidelity Small Cap Growth Index Fund (tracks Russell 2000 Growth Index), Vanguard Small-Cap Growth Index (tracks CRSP US Small Cap Growth Index), Fidelity Small Cap Value Index Fund (tracks Russell 2000 Value Index), Vanguard Small-Cap Value Index (tracks CRSP US Small Cap Value Index), Fidelity International Index Fund (tracks MSCI EAFE Index), Vanguard Developed Markets Index Fund (tracks FTSE Developed ex US All Cap Index); Fidelity® Global ex U.S. Index Fund (tracks MSCI ACWI ex U.S. Index), Vanguard FTSE All-World ex-US Index Fund (tracks FTSE All-World ex-US Index); Fidelity Total International Index Fund (tracks MSCI ACWI ex US IMI Index), Vanguard Total International Index Fund (tracks FTSE Global All Cap ex US index); Fidelity Emerging Markets Index Fund (tracks MSCI Emerging Index), Vanguard Emerging Markets Index Fund (tracks FTSE Emerging Markets All Cap China A Transition Index); Fidelity® Real Estate Index Fund (tracks MSCI US IMI Real Estate 25/25 Index), Vanguard REIT Index Fund (tracks MSCI US REIT Index); Fidelity US Bond Index fund (tracks Bloomberg Barclays U.S. Aggregate Bond Index), Vanguard Total Bond Market Index Fund (tracks Bloomberg Barclays U.S. Aggregate Float Adjusted Index); Fidelity Municipal Bond Index Fund (tracks Bloomberg Barclays Municipal Bond Index), Vanguard Tax-Exempt Bond Index Fund (tracks S&P National AMT-Free Muni Bond Index), Fidelity Short Term Treasury Bond Index Fund (tracks Bloomberg Barclays 1-5 Year U.S. Treasury Index), Vanguard Short-Term Treasury Index Fund Admiral (tracks Bloomberg Barclays U.S. 1–3 Year Government Float Adjusted Index); Fidelity Intermediate Term Treasury Bond Index Fund (tracks Bloomberg Barclays 5-10 Year U.S. Treasury Index), Vanguard Intermediate-Term Treasury Index Fund Admiral (tracks Bloomberg Barclays U.S. 3–10 Year Government Float Adjusted Index); Fidelity Long Term Treasury Bond Index Fund (tracks Bloomberg Barclays U.S. Treasury Long Index), Vanguard Long-Term Treasury Index Fund Admiral (tracks Bloomberg Barclays U.S. Long Government Float Adjusted Index).; Fidelity Short-Term Bond Index Fund (tracks Bloomberg Barclays U.S. 1 – 5 Year Government/Credit Bond Index), Vanguard Short-Term Bond Index Fund (tracks Bloomberg Barclays U.S. 1 – 5 Year Government/Credit Bond Index); With the exception of the Fidelity 500 Index Fund and Vanguard 500 Index Fund which both track the S&P 500, the Vanguard and Fidelity funds track different indexes, which may have different characteristics an investor should consider. Fidelity and Vanguard funds have similar investment objectives. Fidelity MSCI Sector ETFs are passively managed ETFs indexed to the MSCI USA IMI Sector Indexes. Vanguard Sector ETFs are passively managed ETFs indexed to the MSCI U.S. IMI 25-50 Sector Indexes.
Third-party trademarks and service marks are the property of their respective owners. All other trademarks and service marks are the property of FMR LLC or its affiliated companies.
Indexes are unmanaged. It is not possible to invest directly in an index.
System availability and response times may be subject to market conditions.
Diversification does not ensure a profit or guarantee against loss.
Because of their narrow focus, sector funds tend to be more volatile than funds that diversify across many sectors and companies.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
Before investing in any mutual fund or exchange-traded fund, you should consider its investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus, an offering circular, or, if available, a summary prospectus containing this information. Read it carefully.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
How To Invest in Vanguard Mutual Funds
With over $6.2 trillion in global assets under management, Vanguard is one of the largest and most well-respected investment firms in the U.S. Vanguard offers a wide range of low-cost mutual funds, offering investors options for strong performance and market diversification. Here’s everything you need to know about Vanguard’s mutual funds.
Overview of Vanguard Mutual Funds
When you buy shares in Vanguard mutual funds, you are investing in hundreds or even thousands of securities at once, providing excellent diversification. Vanguard is famous for having launched the first index mutual fund for individual investors. Index funds match the performance of market indexes, such as the S&P 500 or the Dow Jones industrial average.
Vanguard has more than 130 mutual funds to choose from in the following asset classes:
- Money market funds: Relatively low-risk investments, money market funds invest in short-term investments issued by U.S. corporations and federal, state and local government agencies.
- Bond funds:Bond funds have a higher risk than money market funds, but they can provide stability to supplement stock investments.
- Stock funds: With stock funds, you can invest in domestic or international companies of all sizes and industries.
- Target date funds: Target date funds invest in a mix of stocks, bonds and other securities. As you approach your target date, the fund becomes increasingly conservative to mitigate risk.
How Mutual Funds Work
Mutual funds are a popular choice for investors. Rather than investing in individual stocks, a mutual fund pools money from investors and buys portfolios of securities like stocks, bonds and short-term debt.
Mutual funds are professionally managed, so a fund manager does the research on what securities to purchase for you. When you purchase a share of a mutual fund, you may get instant diversification, because mutual funds typically invest in a range of companies and industries at once. Investing in a mutual fund instead of individual stocks helps lower your risk. If one security performs poorly, the other securities can offset its losses.
Actively Managed Funds vs. Passive Funds
Actively managed funds attempt to outperform a benchmark index. The portfolio manager selects securities for the fund according to the fund’s criteria. That means there may be more trades, more effort required by management and more taxable capital gains. This is also why fees are generally higher with actively managed funds. The minimum investment for most Vanguard actively managed funds is $50,000.
Index funds are passively managed mutual funds, where the goal is to match the performance of a certain index or benchmark, rather than outperform it. The fund manager will buy all—or a representative sample—of the stock or bonds in the index. There are fewer trades, so there are usually fewer taxable capital gains. Fees are generally lower for passively managed index funds. For most Vanguard index funds, the minimum investment is $3,000.
How Mutual Funds Earn Money
You earn money with mutual funds in three ways:
- Dividend payments: The mutual fund can earn income from dividends on stock or interest from bond. Shareholders will get almost all of the income, minus expenses.
- Capital gains distributions: The price of the securities within the mutual fund can increase over time. If that happens and the fund sells a security, the fund has a capital gain. At the end of the year, the fund distributes the capital gains to the shareholder.
- Increased market value: If the market value of the portfolio increases (after subtracting the portfolio’s expenses) the value of the fund and its shares increases.
What Sets Vanguard Mutual Funds Apart?
Vanguard is known for its relatively low costs. According to the company, its average expense ratio—which is the cost you pay for administrative and operational costs— is 0.10%. The industry average expense ratio is 0.57%.
Vanguard offers a broad selection of no-load mutual funds, meaning there are no sales fees on either the front end or back end when you buy or sell fund shares. The firm’s funds are known for their reliable performance: According to Vanguard, 87% of its no-load mutual funds performed better than their peer-group averages over the past 10 years.
To give you an idea of typical returns, we looked at five of Vanguard’s mutual funds and how they performed over the past decade. We also consulted Morningstar to see how it rated these funds. Morningstar analyzes past returns and assigns funds a star rating based on how well the fund has compensated shareholders for the risk they took on. The best performers receive five stars, while the worst receive just one star. We found that Vanguard’s funds were consistent high performers, with three of the five receiving five stars.
*All annual return figures good as of June 30, 2021.
Vanguard Admiral Shares vs Vanguard Investor Shares
Vanguard offers two classes of shares to individual investors: Admiral Shares and Investor Shares. Vanguard Admiral Shares cost $3,000 for most index funds and $50,000 for most actively managed mutual funds. Certain sector-specific Vanguard index funds charge $100,000 for Admiral Shares.
In the past, Admiral Shares were much more expensive than Investor Shares, although their prices have fallen considerably. Vanguard originally implemented the two-share structure to pass along savings when shareholders would invest more money with a fund.
Most Vanguard index funds no longer offer Investor Shares to new investors—the few that do charge $3,000 per share. Note that Vanguard Target Retirement Funds and the Vanguard STAR Fund still offer $1,000 Investor Shares. Investor Shares in actively managed Vanguard mutual funds cost $3,000.
How to Choose a Mutual Fund
When evaluating mutual funds, consider your risk tolerance and your financial goals. Once you’ve balanced your tolerance for risk against your goals, pick a mutual fund that meets your needs.
For example, if you’re a recent college graduate and are 30 to 40 years years away from retirement, picking a target-date fund that is more aggressively invested in stocks makes sense since you have more time to invest. By contrast, if you’re closer to retirement age, you may want to invest more of your money in a conservative money market or bond fund.
If you’re trying to decide between an index fund and an actively managed fund, keep in mind that actively managed funds have higher fees and much higher investment minimums. Make sure you are comfortable with the higher cost and increased risk before investing your money.
How to Buy Vanguard Mutual Funds
You have three choices for buying shares of Vanguard mutual funds:
1. Open an Account with Vanguard
You can open a brokerage account with Vanguard online. You can choose a taxable investment account, open an individual retirement account (IRA), a solo 401(k), SEP IRA, SIMPLE IRA, UGMA/UTMA or a 529 college savings account. The process takes just a few minutes, and you can link your bank account with your Vanguard account, or roll over funds from another investment account. Once the account is open, you can buy and sell mutual fund shares through your Vanguard account dashboard.
2. Buy Vanguard Mutual Funds in Your Retirement Plan
If you have an employer-sponsored retirement plan, such as a 401(k) or 403(b), you may be able to purchase shares of Vanguard mutual funds if they are among your investment choices.
3. Open an Online Brokerage Account
You can also open a brokerage account with another company like TD Ameritrade, Fidelity, E*Trade or Charles Schwab. With a taxable online brokerage account, you can buy and sell investments like Vanguard mutual funds, exchange-traded funds (ETFs) and individual stocks. Online brokerage account minimums and fees can vary from company to company, so do your homework before opening an account.
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15 Best Vanguard Mutual Funds for Investors of All Stripes
When it comes to Vanguard mutual funds, you might think the universe of offerings is so large that it's impossible to pick the right options. We wouldn't blame you: Vanguard is one of the world's leading asset managers, with a staggering $7 trillion under management.
However, the truth is that Vanguard's mutual funds have risen to such dominance not because they are overly complex or numerous. The investment giant actually only offers about 130 or so mutual funds – many of which have been around and followed the same plan for decades.
That's the appeal of Vanguard: a tried-and-true approach to cost-effective, hands-off investing. You'll find super cheap index funds that are typical from Vanguard on this list of top mutual funds, but you'll also find actively managed options for investors who simply need help making sense of the markets.
Here are 15 of the best Vanguard mutual funds that span a variety of investing strategies. No matter what type of investor you are, you should be able to find at least a couple useful, low-cost options that align with your goals.
Data is as of July 22. Fund yields represent the trailing 12-month yield, which is a standard measure for equity funds, unless otherwise noted. Minimum initial investment for all funds listed here is $3,000.
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Vanguard 500 Index Fund Admiral Shares
- Fund category: Large blend
- Assets under management: $241.2 billion
- Yield: 1.3%
- Expense ratio: 0.04%, or $4 annually for every $10,000 invested
Vanguard 500 Index Fund Admiral Shares (VFIAX, $403.40) became Wall Street's very first index fund in 1975 at the behest of Vanguard founder Jack Bogle. Today, it remains one of the most popular ways to gain diversified exposure to the U.S. equity market in a single holding.
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This Vanguard mutual fund is deceptively simple, offering investors exposure to 500 mostly U.S.-based large- and mid-cap companies, which currently includes popular stocks such as Apple (AAPL), Microsoft (MSFT) and Nvidia (NVDA). In fact, because many of the largest companies on the planet are tech giants like these, information technology makes up about 27% of the entire fund.
Generally, Vanguard 500 Index is seen as a diversified and cost-effective core holding for almost any investor type that wants exposure to publicly traded U.S. companies. That makes it one of the best Vanguard mutual funds for just about any style of investor.
Note: VFIAX also trades as an ETF, the Vanguard S&P 500 ETF (VOO).
Learn more about VFIAX at the Vanguard provider site.
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Vanguard Total Stock Market Index Fund Admiral Shares
- Fund category: Large blend
- Assets under management: $257.6 billion
- Yield: 1.3%
- Expense ratio: 0.04%
Looking beyond just the biggest stocks on Wall Street, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX, $109.58) allows investors to take exposure to some 3,800 total positions. As the name implies, this accounts for almost the entire domestic stock market.
However, because VTSAX is weighted by size, it's still heavily invested in big tech stocks, with the sector accounting for the same share (27%) as VFIAX thanks largely to the same group of trillion-dollar Silicon Valley giants. Furthermore, the top 10 positions overall make up 22% of the entire portfolio despite the fact that thousands of other companies have fractional stakes in the makeup of this Vanguard mutual fund.
That results in a portfolio with a 70-17-6 large-mid-small blend for VTSAX, versus 85-15-0 for VFIAX – so, mildly more diversified by size, but still beholden to large-cap stocks. But that's enough of a difference for many investors to prefer Vanguard Total Stock Market Index over Vanguard 500.
Note: VTSAX also trades as an ETF, the Vanguard Total Stock Market ETF (VTI).
Learn more about VTSAX at the Vanguard provider site.
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Vanguard Total International Stock Index Fund Admiral Shares
- Fund category: Foreign large blend
- Assets under management: $48.6 billion
- Yield: 2.4%
- Expense ratio: 0.11%
Looking beyond U.S. stocks, the Vanguard Total International Stock Index Fund Admiral Shares (VTIAX, $34.88) allows investors to supplement their core holding of U.S. stocks with international stocks – without overlapping positions. That's because VTIAX is ex-U.S., meaning it excludes all domestic stocks from the list of some 7,500 total holdings.
Right now, the region that dominates Vanguard Total International Stock Index is Europe, with about 40% of total assets in stocks such as Swiss foods giant Nestle SA (NSRGY) and French fashion and consumer goods giant LVMH Moet Hennessy Louis Vuitton (LVMUY). However, emerging markets are still well represented with more than 25% of assets tied up in regions including China, India and Brazil.
If you want to stick with the best Vanguard mutual funds as you supplement your core domestic holdings, VTIAX is a cheap and simple way to do so.
Note: VTIAX also trades as an ETF, the Vanguard Total International Stock ETF (VXUS).
Learn more about VTIAX at the Vanguard provider site.
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Vanguard International Explorer Fund
- Fund category: Foreign small/mid growth
- Assets under management: $2.8 billion
- Yield: 1.0%
- Expense ratio: 0.39%
Of course, a huge list of multinational stocks might not ultimately give you more diversification. Nestle is, after all, just as dependent on U.S. consumer tastes as many other domestic food companies. So, why not layer a more qualitative approach to your international investments instead of just picking big overseas stocks?
That's what Vanguard International Explorer Fund (VINEX, $22.46) does. The actively managed portfolio of roughly 530 foreign companies takes a more strategic tack than simply investing in big multinationals with recognizable names. For instance, top holdings include Dutch semiconductor company ASM International NV (ASMIY) and Japanese pharmaceutical firm Nippon Shinyaku – two firms that most U.S. investors probably haven't heard of, but that have nonetheless greatly outperformed the S&P 500 so far in 2021.
Furthermore, many of Vanguard International Explorer's holdings aren't easily accessed by the typical domestic investor. That's the real value of VINEX over the typical ex-U.S. index fund that focuses on high-profile multinationals.
If you're looking for true overseas growth potential, VINEX is likely one of the best Vanguard mutual funds for you.
Learn more about VINEX at the Vanguard provider site.
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Vanguard Dividend Growth Fund
- Fund category: Large blend
- Assets under management: $51.2 billion
- Yield: 1.5%
- Expense ratio: 0.26%
The Vanguard Dividend Growth Fund (VDIGX, $37.40) emphasizes stability and income growth in a simple and cost-effective way.
How simple? Just more than 40 stocks make up this fund right now, with companies including healthcare giant Johnson & Johnson (JNJ), fast food icon McDonald's (MCD) and insurer UnitedHealth Group (UNH) near the top of the list.
Manager Donald Kilbride's mission is to target high-quality, typically large-cap companies that demonstrate the potential for (and typically the existing practice of) raising dividends. But sheer yield isn't the point – hence the 1.5% current yield, while modestly better than the S&P 500's 1.3% yield, is hardly a game-changing amount of income.
It's worth noting that while these entrenched stocks are more stable than the typical growth-oriented tech company that doesn't pay a dividend, this stability can result in investors leaving profits on the table when things are going well for Wall Street. Case in point: Even accounting for dividends, VDIGX has underperformed the S&P so far in 2021.
But if stability and income growth are important to you, VDIGX is one of the best Vanguard mutual funds you can buy. Morningstar notes that the fund offers extremely low risk compared to its peers in the large blend category.
Learn more about VDIGX at the Vanguard provider site.
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Vanguard Selected Value Fund
- Fund category: Mid-cap value
- Assets under management: $6.7 billion
- Yield: 1.1%
- Expense ratio: 0.31%
Value investing involves looking for companies that have inherent value in their operations and aren't as reliant on future growth plans or the whims of Wall Street.
The Vanguard Selected Value Fund (VASVX, $30.26) is a respected option for those interested in this strategy. VASVX comprises about 120 stocks, primarily (93%) in the U.S., and commands a little less than $7 billion in assets under management.
Unlike some of the bigger and more passive index funds out there, actively managed Vanguard Selected Value's targeted approach and a focus on mainly mid-sized companies allows it to chase "deep value" investments instead of just the typical list of large cap consumer staples stocks you normally might see.
Case in point: Top holdings right now include Dublin-based airport lease company AerCap Holdings (AER), Canadian apparel company Gildan Activewear (GIL) and midsize American enterprise computing firm Arrow Electronics (ARW).
If you're stuck in the same old blue chips, this is one of the best Vanguard mutual funds for a breath of fresh air.
Learn more about VASVX from the Vanguard provider site.
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Vanguard Explorer Fund
- Fund category: Small growth
- Assets under management: $24.3 billion
- Yield: 0.1%
- Expense ratio: 0.41%
The flip side of value, of course, is growth. And the Vanguard Explorer Fund (VEXPX, $143.96) represents one of the best Vanguard mutual funds for those wanting to look beyond large-cap stocks to find growth opportunities off the beaten path.
The portfolio at present boasts 750 or so total positions, but a median market capitalization of just $6.4 billion. That could be appealing to investors who are skeptical that mature trillion-dollar companies can continue to outperform and grow at significant rates forever.
VEXPX's managers have heavily concentrated more than two-thirds of assets into just three sectors: Information technology (23%), healthcare (22%) and industrials (20%). Top holdings at present include Irish medical diagnostics company Icon (ICLR), apparel retailer Burlington Stores (BURL) and Silicon Valley cloud software firm Five9 (FIVN).
Smaller companies carry more risk, naturally, but they also theoretically possess much more potential over the long term. VEXPX is an inexpensive way to harness this potential.
Note: VEXPX also trades as Admiral class shares (VEXRX).
Learn more about VEXPX at the Vanguard provider site.
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Vanguard Global Minimum Volatility Fund Investor Shares
- Fund category: World small/mid stock
- Assets under management: $2.8 billion
- Yield: 1.9%
- Expense ratio: 0.21%
After the volatility of 2020, many investors started looking around for funds with a lower risk profile that would help preserve their nest egg in tough times. That's where the Vanguard Global Minimum Volatility Fund Investor Shares (VMVFX, $14.84) comes in, delivering a strategy that is designed to smooth out the bumps in the road for your portfolio.
To be clear, no investment is 100% risk free. But the actively managed fund specializes in both U.S. and foreign stocks that tend to "wiggle" less than their peers, which means VMVFX is more likely to hang tough when things go awry for Wall Street.
Perhaps unsurprisingly, the list of about 300 stocks is biased a bit toward healthcare (16%), technology (15%) and consumer staples (14%). Big tech mainstays such as Microsoft are among the top holdings, as this enterprise giant is too entrenched to go anywhere anytime soon, as are leading U.S. healthcare giants including J&J and Amgen (AMGN) that can rely on medical "customers" regardless of the broader economic environment.
A word of warning, however: While short-term disruptions are painful, the long-term trend of the stock market as a whole has always been higher. In fact, Vanguard warns in its official documentation that "we caution against expecting any low or minimum volatility investment to outperform, or even match, the global equity market over the long term."
In other words, VMVFX isn't an ideal path for growth. But it is one of the best Vanguard mutual funds for investors in need of a shorter-term insurance policy.
Note: VMVFX also trades as Admiral class shares (VMNVX).
Learn more about VMVFX at the Vanguard provider site.
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Vanguard FTSE Social Index Fund Admiral Shares
- Fund category: Large growth (ESG)
- Assets under management: $13.8 billion
- Yield: 1.0%
- Expense ratio: 0.14%
While recent events on Wall Street may have many thinking about volatility, recent events on Main Street also have many investors thinking hard about social responsibility in their portfolio – and how they can have confidence that they're backing companies that align with their personal values.
The Vanguard FTSE Social Index Fund Admiral Shares (VFTAX, $42.78) is one answer to this question. This fund is benchmarked to the FTSE4Good US Select Index, a market cap-weighted index composed of just under 500 large- and mid-capitalization stocks that are screened for environmental, social, and corporate governance criteria – known by the acronym of ESG by most investors.
To be clear, this is an "exclusionary" index, meaning it simply kicks out stocks that do not meet minimum human rights standards or that engage in gambling or fossil fuel production. So in many ways, the list is quite similar to your typical large-cap index fund, with search giant Alphabet (GOOGL), EV maker Tesla (TSLA) and big bank JPMorgan Chase (JPM) near the head of the class.
Still, if you're looking for a simple and cost-effective way to cut out Big Oil or firearms manufacturers, VFTAX could be a good fit.
Learn more about VFTAX at the Vanguard provider site.
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Vanguard Total Bond Market Index Fund Admiral Shares
- Fund category: Intermediate-term core bond
- Assets under management: $80.0 billion
- SEC yield: 1.3%*
- Expense ratio: 0.05%
So far there have been a lot of Vanguard mutual funds on this list to play the stock market in various ways. However, bonds remain an important part of any well-rounded and long-term portfolio, both to provide reliable income as well as a way to smooth out volatility and reduce your risk profile.
The Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX, $11.42) is one of the best Vanguard mutual funds for fixed-income investors. It's a massive, simple and inexpensive way to gain broad exposure to U.S. "investment-grade" bonds.
Primarily, the fund invests in U.S. Treasuries and mortgage-backed securities (MBSes) of all maturities, from bonds due in just a few years to long-term issues that won't mature for a few decades. About two-thirds of the fund is in these government-backed bonds, while the rest is in top-tier corporations including issuers such as Bank of America (BAC).
Unfortunately, with interest rates steadily sliding lower over the last several years, Vanguard Total Bond Market Index yields a mere 1.3%. However, that's about the same as the S&P 500 – and considering the U.S. Treasury and high-quality corporate bonds are a lot more stable than your average stock, that payday comes with a significantly lower risk profile.
Just be aware that, as with other bond funds out there, increases in interest rates might cause the price of the bonds in the portfolio to decrease in face value. So if rates start to rise, VBTLX could experience some short-term pain.
Note: VBTLX also trades as an ETF, the Vanguard Total Bond Market (BND).
* SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.
Learn more about VBTLX at the Vanguard provider site.
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Vanguard Short-Term Treasury Fund Investor Shares
- Fund category: Short-term government bond
- Assets under management: $7.9 billion
- SEC yield: 0.0%
- Expense ratio: 0.20%
If stability and safety are your primary goals, the Vanguard Short-Term Treasury Fund Investor Shares (VFISX, $10.71) is an alternative to VBLTX's whole universe of investment-grade bonds, instead focusing solely on short-term Treasury bonds.
This reduces your risk profile significantly in two important ways. For starters, you're not taking on any corporate debt and instead rely wholly on the U.S. government as the borrower of choice. If Uncle Sam goes bankrupt, we all have much bigger problems than our 401(k), after all.
Secondly, it's important to understand that the "duration" of these loans to the government are only just a few years; right now, the average duration of bonds held by VFISX is just 1.9 years, which effectively means a 1-percentage-point increase in rates should cause VFISX to decline by just 1.9%.
The farther out in time you go the harder it is to predict things, but even if you believed Washington was going to be doomed eventually, a mere two years isn't a lot of time for the entire Treasury Department to fall apart.
The big tradeoff for this level of certainty is the small premium investors get paid on these loans to the federal government. Specifically, the yield on VFISX right now is a measly 2 basis points (0.02%). Even in times of meager inflation, that return on your investment capital likely won't maintain its purchasing power over the next few years.
That's why many investors use this kind of fund as a short-term holding place for cash until they're ready to redeploy it.
Note: VFISX also trades as Admiral class shares (VFIRX).
Learn more about VFISX at the Vanguard provider site.
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Vanguard Inflation-Protected Securities Fund Investor Shares
- Fund category: Inflation-protected bond
- Assets under management: $37.0 billion
- SEC yield: -1.7%
- Expense ratio: 0.20%
Speaking of inflation, the actively managed Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX, $14.69) offers an interesting investment or hedge for those that are worried about rising prices over the long-term. This fund is designed to protect your portfolio through a focus on Treasury Inflation Protected Securities, or TIPS.
This special class of bonds is not only backed by the full faith and credit of the federal government, but it's also indexed to inflation. In other words, should runaway inflation hit, you will see the value of VIPSX increase in kind to protect you.
This might sound so good, you wonder why any investor would ever go after conventional bonds in an inflationary environment. However, it's important to note that the potential gain in principal value you'll enjoy is offset – or depending on market conditions, sometimes more than offset – by a reduction in yield. Consider that the specter of inflation has caused the yield on recently issued TIPS to actually turn negative, with VIPSX yielding -1.7% at present.
This is a real risk in TIPS, which saw negative yields for the first time in 2010 after fears of inflation in the wake of the global financial crisis and related government bailouts. It's also worth noting that despite these fears, inflation ran at a roughly 1.6% annualized rate in 2010 – hardly enough to justify those negative yields.
But if you're really concerned about inflation, VIPSX is one of the best Vanguard mutual funds you can buy.
Note: VIPSX also trades as Admiral class shares (V).
Learn more about VIPSX at the Vanguard provider site.
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Vanguard High-Yield Corporate Fund Investor Shares
- Fund category: High-yield bond
- Assets under management: $29.6 billion
- SEC yield: 2.8%
- Expense ratio: 0.23%
If you're interested in income from the bond market, then the Vanguard High-Yield Corporate Fund Investor Shares (VWEHX, $6.00) is worth a look. This actively managed fund is well established, with about $30 billion in total assets under management, and ranks as one of Kiplinger's 25 favorite mutual funds.
VWEHX seeks a higher level of income than is normally provided by more credit-worthy borrowers in the bond market by investing primarily in corporate securities from slightly tarnished firms. Among the positions in the fund right now are bonds from printing producer Xerox (XRX) and casino operator Caesars Entertainment (CZR). Obviously, there's more risk in lending to companies like this than mega-cap mainstays, but there's also a better rate of return on that investment if these companies continue to make good on their debt payments.
How much better is that rate of return? The current SEC yield of 2.8% is more than double the yield on the S&P 500, and considerably better than most large-cap dividend funds and investment-grade bond funds.
Also, with more than 600 different bonds to build in some diversification, chances are that even if a few of these investments go south, Vanguard High-Yield Corporate will remain a solid performer in the long term.
Note: VWEHX also trades as Admiral class shares (VWEAX).
Learn more about VWEHX at the Vanguard provider site.
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Vanguard Wellington Fund Investor Shares
- Fund category: Allocation (50%-70% equity)
- Assets under management: $120.3 billion
- Yield: 1.7%
- Expense ratio: 0.24%
The nearly century-old Vanguard Wellington Fund Investor Shares (VWELX, $49.03) isn't just one of the best Vanguard mutual funds on offer. It's also the oldest, and it also claims to be the nation's oldest "balanced" fund, looking to allocate investors into a mix of stocks and bonds for a more diversified approach than sticking to just one asset class.
Founded in 1929, this Kiplinger 25 selection aims to keep about two-thirds of the portfolio in stocks and the other third in bonds for broad diversification. Though bonds are the "smaller" part of the portfolio, VWELX still holds nearly 1,100 different debt issues, giving this fund a very diversified view of this asset class.
Conversely, while stocks represent two-thirds of the total portfolio, Wellington's managers only have 60 total positions at the moment. That said, the mix of industries is still decent; technology is the largest sector by weighting (20%), but five other sectors rank around 10% or more for a broad look at the equities market.
All this balance comes at a very low cost, with a fee structure that is quite affordable when compared with other diversified asset allocation funds.
Editor's note: VWELX and the Admiral class VWENX shares are currently closed to new investors unless they purchase directly through a Vanguard brokerage account.
Learn more about VWELX at the Vanguard provider site.
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Vanguard LifeStrategy Growth Fund
- Fund category: $20.8 billion
- Assets under management: $20 billion
- Yield: 1.6%
- Expense ratio: 0.14%
Rounding out this list of the top Vanguard mutual funds is one of its premier "funds of funds" – the Vanguard LifeStrategy Growth Fund (VASGX, $44.11), which is an amalgamation of other offerings, including some of the picks already mentioned on this list.
The idea is pretty simple: If you're an investor who wants to cover multiple asset classes and take a holistic approach to your portfolio instead of picking and choosing individual positions, VASGX will balance things out for you.
Right now, VASGX's five holdings include domestic equity fund Vanguard Total Stock Market at 49% of the fund, foreign stock fund Vanguard Total International (32%), Vanguard Total Bond Market II (VTBIX, 14%) to represent investment grade U.S. bonds, and then Vanguard Total International Bond Fund (VTABX) and Vanguard Total International Bond II Index Fund (VTIIX) providing overseas fixed-income exposure to round out the fund.
You have all your bases covered in one fund here. This is all many investors need to approach their portfolio in a single position. However, be aware that if you don't like this mix, you don't really have much say in customization of the fund.
Learn more about VASGX at the Vanguard provider site.
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