A mix of choices for investors.
Mutual funds can help diversify your retirement portfolio, whether you’re looking for growth through equity exposure or dividend income. Vanguard has a reputation for offering low-cost index funds and exchange-traded funds to help investors achieve their retirement goals. “Other discount brokers like Fidelity also offer competitive funds, but they often do not have the same track record that their Vanguard equivalents have,” says Jay Abolofia, a financial advisor and the founder of Lyon Financial Planning in Weston, Massachusetts. Choosing the right mix of Vanguard funds to include in a portfolio is no easy task, given the wide variety. If you’re wondering which Vanguard funds are superior, here are seven of the top options worth considering, including the best bond funds for retirement.
Vanguard Total Bond Market ETF (ticker: BND)
Bonds can act as a buffer against stock market volatility when investing for retirement. BND is one of the best bond funds Vanguard offers in terms of cost, yield and performance. The current yield is 2.5%, while the fund has an almost rock-bottom expense ratio of 0.04%. The fund, which tracks the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, has a 10-year trailing return of 3.78%. Ryan Scribner, co-owner of personal finance site Investing Simple, says the Vanguard Total Bond Market ETF could be a great option for constructing a simple portfolio. “This fund works great for the two-fund portfolio approach, which is essentially where you invest in a low-fee bond fund and equity fund.”
Vanguard Total World Stock Index Fund (VTWAX)
If you’re following the two-fund strategy, VTWAX could be a solid companion to BND. “Not only does this fund give you diversified exposure to companies in the U.S. but also internationally,” Scribner says. Including international stocks in your retirement plan could make sense if you’re hoping to diversify with large-cap stocks. For instance, some of the top holdings include Apple (AAPL) and Microsoft Corp. (MSFT), along with Amazon.com (AMZN) and Facebook (FB). As a newer offering, the Vanguard Total World Stock Index Fund doesn’t have the same lengthy track record as other Vanguard funds — but it could be a good addition if you’re looking for a low-cost index option to gain exposure to foreign markets.
Vanguard Total Bond Market Index Fund (VBTLX)
The Vanguard Total Bond Market Index Fund is one of the best bond funds for retirement if you’re looking for a mutual fund alternative to BND. Like the ETF version, this fund tracks the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which measures the performance of public, investment-grade bonds and fixed-income securities. VBTLX offers a similar yield, at 2.47%, though the expense ratio is slightly higher at 0.05%. Performance-wise, VBTLX is neck and neck with BND, based on the 10-year trailing return. But compared with BND, this fund has a much lower share price, which could make it an attractive choice if you’re looking to take advantage of bargain buys for Vanguard bond funds.
Vanguard Total Stock Market Index Fund (VTSMX)
VTSMX is one of the best Vanguard index funds to consider for gaining exposure to the U.S. stock market in its entirety when planning for retirement. “This is a very broad index fund, meant to track the performance of domestic stocks of all sizes,” says Robert Johnson, a professor of finance at the Heider College of Business at Creighton University. Specifically, the Vanguard Total Stock Market Index Fund uses the CRSP US Total Market Index as its benchmark, which spans small-, mid- and large-cap stocks, as well as microcap stocks, that are traded on the New York Stock Exchange and Nasdaq. Johnson says the fund’s best features include a 0.14% expense ratio and a low investment turnover ratio of just 4%.
Vanguard Target Retirement 2055 Fund (VFFVX)
Vanguard target-date funds can offer a streamlined approach to retirement investing, which you may appreciate if you’re just entering the market. VFFVX may suit investors who have a longer horizon to plan for retirement. “If you’re still new in the labor market, you want to avail of this 40 years before you retire,” says Michael Hammelburger, CEO of consultancy firm The Bottom Line Group. “Its assets are diversified in domestic and international stocks, with a shift toward bonds in the next decade.” By the numbers, the Vanguard Total Retirement 2055 Fund offers a 2.26% yield and a low turnover ratio of 3%. The fund’s expense ratio is 0.15%, and it has a five-year trailing return of 6.77%.
Vanguard Balanced Index Fund (VBIAX)
Balanced funds offer the best of both worlds, with a strategic mix of stocks and bonds. VBIAX features a 60-40 split. A full balance index strategy, such as the one offered by the Vanguard Balanced Index Fund, allows for a fully diversified portfolio in a one-stop-shop, says Christopher Caruso, a private wealth advisor at Glovista Investments. As an index fund, it’s unique in that it tracks two underlying benchmarks: the CRSP US Total Market Index and the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. This fund offers passive investing at a low expense ratio of 0.07%, with a yield of 2.02%. One thing to note is that VBIAX has a higher turnover ratio compared with other Vanguard funds at 37%.
Vanguard Long-Term Investment-Grade Fund (VWESX)
One final option to consider if you’re interested in finding the best bond funds for retirement is VWESX. This fund is designed for those seeking retirement income and invests primarily in high-quality, fixed-income securities, with some medium-quality securities included in the mix as well. Compared with some of the other bond funds mentioned here, the Vanguard Long-Term Investment-Grade Fund offers one of the best yields overall at 3.22%. It also features an impressive 10-year trailing return of 8.11%. Cost-wise, it’s slightly more expensive than other Vanguard bond fund offerings. But even with an expense ratio of 0.22%, VWESX still rates as one of the most cost-efficient ways to build a bond retirement portfolio through Vanguard.
Check out the best Vanguard funds for retirement:
— Vanguard Total Bond Market ETF (BND)
— Vanguard Total World Stock Index Fund (VTWAX)
— Vanguard Total Bond Market Index Fund (VBTLX)
— Vanguard Total Stock Market Index Fund (VTSMX)
— Vanguard Target Retirement 2055 Fund (VFFVX)
— Vanguard Balanced Index Fund (VBIAX)
— Vanguard Long-Term Investment-Grade Fund (WESX)
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Update 07/10/20: This story was published at an earlier date and has been updated with new information.