These are the top Vanguard funds to buy.
The Vanguard Group was founded by the late Jack Bogle in 1975 on two principles: maximum diversification and minimal fees. Forty-seven years later, these principles still endure in the construction of many Vanguard funds. The firm is known for its continually slashing the expense ratios of their products and creating new funds to suit investors of all objectives and risk tolerances. Today, Vanguard manages over $7 trillion in assets under management, or AUM, and lists over 410 funds from around the world. Investors can create a complete, low-cost and diversified investment portfolio with just a few Vanguard funds. The firm also offers a simple and accessible brokerage platform that allows the average retail investor to ditch their financial advisor and go the do-it-yourself route. Here are seven of the best Vanguard mutual funds and exchange-traded funds, or ETFs, suitable for long-term buy-and-hold investors.
Vanguard Total Stock Market ETF (ticker: VTI)
Bogle’s mentality could be summed up in one particular quote of his: “Don’t look for the needle in the haystack — just buy the haystack!” Instead of trying to pick the best stocks in the U.S. market, Bogle suggested that investors should just buy the entire U.S. market. Thanks to Vanguard’s passive indexing methodologies, this is now possible. Investors can buy VTI, which tracks the CRSP Total Market Index. This is a market-cap-weighted index of roughly 4,136 stocks listed on U.S. exchanges. Being market-cap weighted, around 82% of the index is large caps, with a smattering of small- and mid-cap stocks. Like many Vanguard ETFs, it is extremely cheap, costing an expense ratio of just 0.03%, or $3 for a $10,000 investment.
Vanguard S&P 500 ETF (VOO)
Investors who prefer sticking to large-cap, blue-chip U.S. stocks can opt for the S&P 500 index in lieu of the CRSP Total Market Index. This is a market-cap-weighted index of hundreds of the largest companies traded on U.S. exchanges. Since inception, the S&P 500 has returned an annualized 10% and is notoriously hard for professional and retail investors alike to beat. Even legendary value investor Warren Buffett chose the S&P 500 as the investment of choice for his estate. A great way of investing in the S&P 500 is via VOO, which costs a rock-bottom expense ratio of 0.03%. Plus, because VOO and VTI track each other closely, investors could potentially use the pair for tax-loss harvesting.
Vanguard Total International Stock ETF (VXUS)
Investors who started investing after 2009 have enjoyed a decade of U.S. stock market outperformance. However, there have been extended periods of times where even risk-free Treasury bills beat the returns of the U.S. stock market. A great example is the “lost decade” of 2000 to 2009, where U.S. stocks were pummeled by the dot-com bubble and the great financial crisis. During this time, international stocks from developed and emerging markets posted handsome returns. Therefore, it’s a good idea for long-term investors to diversify some of their stock allocation internationally. An easy way to do so is via VXUS, which holds a total of 7,896 global ex-U.S. stocks. The ETF costs an expense ratio of 0.07% and investors could recoup a foreign tax credit on a portion of the dividends withheld if it’s held in a taxable account.
Vanguard Total World Stock ETF (VT)
As of right now, the world’s stock market is roughly split 55/45 between U.S. and ex-U.S. stocks. Investors who want to diversify their stock allocation as broadly as possible can opt for a 55/45 VTI/VXUS split to match this. However, this approach comes with drawbacks, including the need to rebalance periodically and not tinker excessively. A one-ticker alternative here is VT, which tracks U.S. and international stocks in one ETF. VT holds over 9,500 global stocks. While this is less than the number you get by combining VTI and VXUS, it’s still more than diversified and representative of global market returns. A bonus is that Vanguard will automatically rebalance and adjust VT’s composition as the world’s market changes. In many ways, VT is the pinnacle of passive stock investing. The ETF costs an expense ratio of just 0.07%.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
VBIAX is a mutual fund. Unlike ETFs, mutual funds only report their prices in the form of net asset value, or NAV, at the end of a trading day. Shares of mutual funds are not bought and sold on an exchange. However, they can be purchased in many increments, unlike ETFs that must be purchased for the price of a full share. Thus, contributions to a mutual fund are more easily automated. Investors seeking a “balanced” mutual fund can buy VBIAX, which holds a 60/40 portfolio of U.S. stocks and U.S. investment grade bonds. This is a historically well-performing portfolio that offers a good risk-return profile best suited for investors with a medium risk tolerance and time horizon. VBIAX costs an expense ratio of 0.07% and requires a $3,000 minimum investment.
Vanguard 500 Index Fund Admiral Shares (VFIAX)
VFIAX is the mutual fund form of VOO. Investors who want to buy VOO have to pony up around $350 per share unless their brokerage offers fractional shares. With VFIAX, investors can contribute any amount of money they wish. This makes recurring, smaller purchases easier, as you don’t have to buy in multiples of $350. Otherwise, VFIAX performs the same as VOO, given they both track the S&P 500. However, VFIAX only reports its price after markets close based on its net asset value, while the price of VOO fluctuates throughout the day as it is traded. Like VBIAX, VFIAX requires a minimum $3,000 investment. The fund costs an expense ratio of 0.04%.
Vanguard Alternative Strategies Fund (VASFX)
Advanced investors with a high net worth might like VASFX, which can be thought of as Vanguard’s equivalent of a hedge fund. VASFX is an actively managed mutual fund that seeks to generate low correlations with both stocks and bonds while delivering lower volatility and positive expected returns. In other words, adding VASFX could increase a portfolio’s diversification and improve its risk-return profile. The fund achieves this through long and short positions in equities, foreign currencies, fixed income, and also merger arbitrage strategies. However, unlike the 2%/20% structure charged by hedge funds, VASFX has an expense ratio of just 1.28%. Year to date through Sept. 15, the fund is up 1.2% compared to the 18.1% loss suffered by the S&P 500 over the same period.
Top Vanguard funds to buy and hold:
— Vanguard Total Stock Market ETF (VTI)
— Vanguard S&P 500 ETF (VOO)
— Vanguard Total International Stock ETF (VXUS)
— Vanguard Total World Stock ETF (VT)
— Vanguard Balanced Index Fund Admiral Shares (VBIAX)
— Vanguard 500 Index Fund Admiral Shares (VFIAX)
— Vanguard Alternative Strategies Fund (VASFX)
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Update 09/16/22: This story was published at an earlier date and has been updated with new information.