Best Vanguard Funds
Best Vanguard Funds
Vanguard's current lineup of 266 mutual funds is as diverse as it gets, ranging from low-cost index funds to actively managed, hedge-fund-style strategies such as market-neutral.
But for retail investors looking to buy and hold for the long term, picking the right fund from such a vast selection can seem daunting at first glance. Fortunately, there are ways to narrow down the list.
The first step is to screen out any institutional share class funds. These are typically intended for large investors like pension funds, endowments or family offices managing significant sums of money.
They often require high minimum investments, sometimes even millions of dollars, making them impractical for the average retail investor.
Instead, focus on Vanguard's "investor" shares, which have low minimums, or the "admiral" shares, which offer lower expense ratios in exchange for higher minimum investments, typically $3,000.
Next, consider which asset class fits your needs. Money market and bond funds provide stability and generate income, but over the long term, they typically don't offer the same growth potential as stocks. That's because they lack exposure to the market risk premium that drives equity returns over time.
For a buy-and-hold portfolio, it often makes sense to allocate the bulk of your investments to equity funds – especially those that aren't confined to a specific sector or niche, like small-cap stocks.
For long-term investors, broad core equity funds offer the diversification needed to weather market ups and downs while capturing growth across the entire market.
Here's a look at seven of the best Vanguard funds to buy and hold:
Fund
Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX)
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
Vanguard Developed Markets Index Fund Admiral Shares (VTMGX)
Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX)
Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
Vanguard Wellington Fund Investor Shares (VWELX)
Vanguard Target Retirement 2070 Fund (VSVNX)
But for retail investors looking to buy and hold for the long term, picking the right fund from such a vast selection can seem daunting at first glance. Fortunately, there are ways to narrow down the list.
The first step is to screen out any institutional share class funds. These are typically intended for large investors like pension funds, endowments or family offices managing significant sums of money.
They often require high minimum investments, sometimes even millions of dollars, making them impractical for the average retail investor.
Instead, focus on Vanguard's "investor" shares, which have low minimums, or the "admiral" shares, which offer lower expense ratios in exchange for higher minimum investments, typically $3,000.
Next, consider which asset class fits your needs. Money market and bond funds provide stability and generate income, but over the long term, they typically don't offer the same growth potential as stocks. That's because they lack exposure to the market risk premium that drives equity returns over time.
For a buy-and-hold portfolio, it often makes sense to allocate the bulk of your investments to equity funds – especially those that aren't confined to a specific sector or niche, like small-cap stocks.
For long-term investors, broad core equity funds offer the diversification needed to weather market ups and downs while capturing growth across the entire market.
Here's a look at seven of the best Vanguard funds to buy and hold:
Fund
Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX)
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
Vanguard Developed Markets Index Fund Admiral Shares (VTMGX)
Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX)
Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
Vanguard Wellington Fund Investor Shares (VWELX)
Vanguard Target Retirement 2070 Fund (VSVNX)
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Re: Best Vanguard Funds
Vanguard 500 Index Fund Admiral Shares (VFIAX)
"The S&P 500 index should be a staple of every investor's portfolio," says Henry Yoshida, CEO and co-founder of Rocket Dollar. If you're looking for core large-cap U.S. equity exposure, this benchmark is a great option. It is diversified across all 11 market sectors, holds value and growth stocks, and has a rules-based methodology and index committee that ensures a baseline of quality for constituents.
Vanguard's flagship S&P 500 mutual fund is VFIAX. It charges a low 0.04% expense ratio, which works out to just $4 in annual fees for a $10,000 investment. The fund is also fairly tax efficient thanks to a 2.2% turnover rate, keeping capital gains distributions to a minimum. It does require a $3,000 minimum investment, but you can sidestep this by picking the exchange-traded fund (ETF) version – Vanguard S&P 500 ETF (VOO) – instead.
"The S&P 500 index should be a staple of every investor's portfolio," says Henry Yoshida, CEO and co-founder of Rocket Dollar. If you're looking for core large-cap U.S. equity exposure, this benchmark is a great option. It is diversified across all 11 market sectors, holds value and growth stocks, and has a rules-based methodology and index committee that ensures a baseline of quality for constituents.
Vanguard's flagship S&P 500 mutual fund is VFIAX. It charges a low 0.04% expense ratio, which works out to just $4 in annual fees for a $10,000 investment. The fund is also fairly tax efficient thanks to a 2.2% turnover rate, keeping capital gains distributions to a minimum. It does require a $3,000 minimum investment, but you can sidestep this by picking the exchange-traded fund (ETF) version – Vanguard S&P 500 ETF (VOO) – instead.
Re: Best Vanguard Funds
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
"VTSAX gives you complete exposure to the entire U.S. stock market, from the 'Magnificent Seven' down to thousands of publicly traded small- and mid-cap stocks that could become the next Nvidia Corp. (NVDA) of the future," Yoshida says. "Personally, it represents the majority of my personal investment portfolio since it is so diversified, low-cost and tax efficient – you can buy this fund and hold it forever."
This fund tracks the CRSP U.S. Total Market Index. It has top holdings similar to VFIAX because both are market-cap-weighted, giving larger blue-chip stocks greater emphasis. However, VTSAX is arguably more diversified, offering exposure to thousands of additional small- and mid-cap stocks that VFIAX does not include. VTSAX charges a 0.04% expense ratio and requires a $3,000 minimum investment.
"VTSAX gives you complete exposure to the entire U.S. stock market, from the 'Magnificent Seven' down to thousands of publicly traded small- and mid-cap stocks that could become the next Nvidia Corp. (NVDA) of the future," Yoshida says. "Personally, it represents the majority of my personal investment portfolio since it is so diversified, low-cost and tax efficient – you can buy this fund and hold it forever."
This fund tracks the CRSP U.S. Total Market Index. It has top holdings similar to VFIAX because both are market-cap-weighted, giving larger blue-chip stocks greater emphasis. However, VTSAX is arguably more diversified, offering exposure to thousands of additional small- and mid-cap stocks that VFIAX does not include. VTSAX charges a 0.04% expense ratio and requires a $3,000 minimum investment.
Re: Best Vanguard Funds
Vanguard Developed Markets Index Fund Admiral Shares (VTMGX)
Investors can diversify further beyond VFIAX or VTSAX via an international equity fund like VTMGX. This fund tracks the FTSE Developed All Cap ex U.S. Index, a benchmark of over 3,900 market-cap-weighted companies. Notable countries represented include the U.K., Japan, Switzerland, Canada, Germany, Australia, Korea, France, the Netherlands, Sweden, Italy and Spain.
VTMGX trades in U.S. dollars, unlike its underlying holdings, which trade in a variety of different currencies. By buying VTMGX, investors can add seamless international diversification while avoiding costly currency conversion fees. Vanguard also recently lowered this fund's expense ratio to 0.05%, making it even more affordable. However, it comes with a $3,000 minimum investment requirement.
Investors can diversify further beyond VFIAX or VTSAX via an international equity fund like VTMGX. This fund tracks the FTSE Developed All Cap ex U.S. Index, a benchmark of over 3,900 market-cap-weighted companies. Notable countries represented include the U.K., Japan, Switzerland, Canada, Germany, Australia, Korea, France, the Netherlands, Sweden, Italy and Spain.
VTMGX trades in U.S. dollars, unlike its underlying holdings, which trade in a variety of different currencies. By buying VTMGX, investors can add seamless international diversification while avoiding costly currency conversion fees. Vanguard also recently lowered this fund's expense ratio to 0.05%, making it even more affordable. However, it comes with a $3,000 minimum investment requirement.
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Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX)
An emerging market is a country with a developing economy that is transitioning toward greater industrialization, increased consumer activity and a growing middle class. Some of the largest emerging markets include China, India, Brazil and South Africa. Accessing individual equities from these regions can be challenging for U.S. investors since not all are available as American depositary receipts (ADRs).
A practical solution is VEMAX, which holds over 5,800 market-cap-weighted emerging market stocks represented by the FTSE Emerging Markets All Cap China A Inclusion Index. In addition to the countries mentioned earlier, VEMAX also includes companies from Taiwan, Saudi Arabia, Malaysia, Mexico, Thailand and the U.A.E. It charges a 0.13% expense ratio and requires a $3,000 minimum investment.
An emerging market is a country with a developing economy that is transitioning toward greater industrialization, increased consumer activity and a growing middle class. Some of the largest emerging markets include China, India, Brazil and South Africa. Accessing individual equities from these regions can be challenging for U.S. investors since not all are available as American depositary receipts (ADRs).
A practical solution is VEMAX, which holds over 5,800 market-cap-weighted emerging market stocks represented by the FTSE Emerging Markets All Cap China A Inclusion Index. In addition to the countries mentioned earlier, VEMAX also includes companies from Taiwan, Saudi Arabia, Malaysia, Mexico, Thailand and the U.A.E. It charges a 0.13% expense ratio and requires a $3,000 minimum investment.
Re: Best Vanguard Funds
Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
Combining VTSAX, VTMGX and VEMAX creates a globally diversified equity portfolio split between U.S., developed and emerging markets, but investors still have to decide the allocation assigned to each fund and also how frequently to rebalance. To automate this, consider replacing all three of those funds with VTWAX, which tracks all three geographies via the FTSE Global All Cap Index.
The 9,800-plus stocks in VTWAX are currently split 64.7% in U.S. stocks, 25.8% in developed market stocks and 9.5% in emerging market stocks. This is assigned based on market capitalization, and with U.S. stocks currently dominating as the largest companies worldwide, there's a home-bias overweight. All this comes at a 0.09% expense ratio with the usual $3,000 minimum investment requirement.
Combining VTSAX, VTMGX and VEMAX creates a globally diversified equity portfolio split between U.S., developed and emerging markets, but investors still have to decide the allocation assigned to each fund and also how frequently to rebalance. To automate this, consider replacing all three of those funds with VTWAX, which tracks all three geographies via the FTSE Global All Cap Index.
The 9,800-plus stocks in VTWAX are currently split 64.7% in U.S. stocks, 25.8% in developed market stocks and 9.5% in emerging market stocks. This is assigned based on market capitalization, and with U.S. stocks currently dominating as the largest companies worldwide, there's a home-bias overweight. All this comes at a 0.09% expense ratio with the usual $3,000 minimum investment requirement.
Re: Best Vanguard Funds
Vanguard Wellington Fund Investor Shares (VWELX)
"Launched in 1929, VWELX has seen it all – the Great Depression, World War II, the bear market of the 1970s, the subsequent bull market of the '80s and '90s, the global financial crisis, and the COVID-19 pandemic, just to name a few," says Brian Miller, senior investment specialist on the multi-asset solutions team at Vanguard. This fund can be a great long-term hold for investors with a lower risk tolerance.
Two-thirds of VWELX is allocated to large-cap stocks screened for quality, above-average dividends and low valuations. The remaining one-third is allocated to investment-grade bonds. Since inception, VWELX has returned an annualized 8.3%. However, a greater turnover rate due to active management and a 2.2% 30-day SEC yield makes this fund less tax efficient. It also charges a higher 0.26% expense ratio.
"Launched in 1929, VWELX has seen it all – the Great Depression, World War II, the bear market of the 1970s, the subsequent bull market of the '80s and '90s, the global financial crisis, and the COVID-19 pandemic, just to name a few," says Brian Miller, senior investment specialist on the multi-asset solutions team at Vanguard. This fund can be a great long-term hold for investors with a lower risk tolerance.
Two-thirds of VWELX is allocated to large-cap stocks screened for quality, above-average dividends and low valuations. The remaining one-third is allocated to investment-grade bonds. Since inception, VWELX has returned an annualized 8.3%. However, a greater turnover rate due to active management and a 2.2% 30-day SEC yield makes this fund less tax efficient. It also charges a higher 0.26% expense ratio.
Re: Best Vanguard Funds
Vanguard Target Retirement 2070 Fund (VSVNX)
"Vanguard's suite of target retirement funds can be a complete portfolio solution for investors who want a simple, globally diversified portfolio that adjusts its risk profile over time," Miller says. "Simply pick the target date closest to when you plan to retire, and the fund allocates your assets to a low-cost mix of stocks and bonds that gradually gets more conservative as you approach retirement."
For example, investors looking to retire around 2070 should opt for VSVNX. This fund currently allocates 90% to global stocks and 10% to global bonds. But as time passes, VSVNX will dynamically adjust its strategy to become more conservative. This involves increasing bonds to favor capital preservation as investors near retirement. The fund charges a 0.08% expense ratio and has a $1,000 minimum investment.
"Vanguard's suite of target retirement funds can be a complete portfolio solution for investors who want a simple, globally diversified portfolio that adjusts its risk profile over time," Miller says. "Simply pick the target date closest to when you plan to retire, and the fund allocates your assets to a low-cost mix of stocks and bonds that gradually gets more conservative as you approach retirement."
For example, investors looking to retire around 2070 should opt for VSVNX. This fund currently allocates 90% to global stocks and 10% to global bonds. But as time passes, VSVNX will dynamically adjust its strategy to become more conservative. This involves increasing bonds to favor capital preservation as investors near retirement. The fund charges a 0.08% expense ratio and has a $1,000 minimum investment.