These are standout, low-cost Vanguard funds for retirement.
Vanguard has made a name for itself by focusing on low-cost products, helping the mutual fund provider rack up more than $8 trillion in global assets under management as of the end of January. With more than 215 index products and actively managed funds for U.S. investors and 207 additional ones for those outside the U.S., choosing the right mix of Vanguard funds for your retirement portfolio can be daunting. If you’re wondering which options are superior, here are seven of the best Vanguard funds to buy for retirement, according to investment professionals.
Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX)
If you’re looking for a fund to fill out a sizable chunk of your portfolio, you may want to consider this one, which seeks to match the performance of the S&P 500. “An excellent way to obtain exposure to a diversified set of stocks in your retirement accounts is through index funds,” says Mark Gibbens, CEO at Erudite Capital. This fund “has low fees and provides you with exposure to some of the largest and (most) established companies from across market sectors.” Keep in mind that the stock market has its ups and downs. They can be less scary when you’re a long way from retirement, but you may have to work to fight making emotional investing decisions if the market tanks right before you’re scheduled to retire.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
If you’re looking to spread your investments across company size classes, you may want to consider this fund, which includes midsize and small companies plus the large companies in the S&P 500. “The addition of these mid- and small-capitalization companies provides more diversification than large S&P 500-type companies alone,” Gibbens says. Kunal Sawhney, CEO of Kalkine Group, notes that during times of market turbulence, investors may prefer large-cap stocks over small-cap companies because of the former’s solid fundamentals and market dominance. Over time, emerging small-cap stocks may go on to become large-cap stocks, as Tesla Inc. (TSLA) did, while those that are already large, such as Microsoft Corp. (MSFT), may also produce moderate returns, Sawhney says.
Vanguard Total Stock Market ETF (VTI)
While mutual funds with low costs and easy diversification can be attractive, there are some drawbacks. “The cons of Vanguard mutual funds generally lie with the problems that face mutual funds in general,” says Gibbens. “These mutual fund vehicles do not trade during the trading day, so essentially, you would receive end-of-day pricing if you were to buy or sell these instruments.” Also, mutual funds generally aren’t as tax-efficient as exchange-traded funds, he says. For a Vanguard ETF that also provides broad diversification, Sawhney points to Vanguard Total Stock Market ETF.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
Of course, you’re going to want to have some bonds in your portfolio to help ride out downturns in equity markets. A moderate allocation of 60% stocks and 40% bonds “can help you grow your nest egg over time as you prepare for retirement,” Gibbens says. This fund provides that classic 60/40 mix by tracking two indexes representing bellwether U.S. equity and taxable bond markets. “Investors with a long-term time horizon who want growth and some income — and who are willing to accept stock and bond market volatility — may wish to consider this as a core holding in their portfolio,” Vanguard states.
Vanguard Dividend Growth Fund (VDIGX)
Companies that pay dividends — and especially those with long track records of raising their dividends — can often make for steadier investments than companies that don’t. That can provide some cushion within an investor’s portfolio in addition to bonds. This fund focuses on high-quality firms with not only the ability but also the commitment to growing their dividends, Vanguard says. “VDIGX provides a great way for investors to hold companies that can return cash to shareholders,” Gibbens says. “These investors are looking for companies that have relatively stable earnings and the ability to pay and grow dividends over time.”
Vanguard Developed Markets Index Fund Admiral Shares (VTMGX)
While emerging and frontier markets can provide upside, they also come with substantial risks. Investing in developed nations outside the U.S. can help diversify a portfolio geographically with less risk than developing nations. “The geographic diversification provided by this fund could provide significant benefits away from holding only U.S. assets,” Gibbens says. Of course, while investing outside the U.S., the world’s largest economy, can bring more volatility, such investing can also provide some balance depending on what the U.S. dollar is doing compared with currencies of other nations.
Vanguard Target Retirement 2055 Fund (VFFVX)
This fund is targeted to investors planning to retire between 2053 and 2057. Of course that’s not everyone, but this fund is an example of the Vanguard funds that are targeted toward certain retirement date windows. These funds adjust the risk mix as investors age. “The easiest funds to ‘set it and forget it’ are target-date funds,” Gibbens says. “Essentially, these instruments will be more heavily invested in stocks if your retirement is far away and hold less exposure to stocks as you near retirement.” These one-stop shops can help narrow down the choices in Vanguard funds for retirement.
The 7 top Vanguard funds for retirement:
— Vanguard 500 Index Fund Admiral Shares (VFIAX)
— Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
— Vanguard Total Stock Market ETF (VTI)
— Vanguard Balanced Index Fund Admiral Shares (VBIAX)
— Vanguard Dividend Growth Fund (VDIGX)
— Vanguard Developed Markets Index Fund Admiral Shares (VTMGX)
— Vanguard Target Retirement 2055 Fund (VFFVX)
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