7 Best Vanguard Funds to Buy and Hold

Here are the top Vanguard funds for long-term investors.

In 1974, Jack Bogle founded the Vanguard Group. His goal? To provide the average investor with low-cost, diversified and accessible investment funds. Two years later in 1976, Bogle launched the world’s inaugural publicly available index fund, the First Index Investment Trust. Although it was initially mocked by Wall Street as “Bogle’s Folly,” the fund attracted high amounts of investor capital and eventually morphed into the legendary Vanguard 500 Index Fund Investor Shares (ticker: VFINX). Today, Bogle’s legacy endures, with Vanguard growing to over $7 trillion in assets under management, or AUM. The firm currently boasts a lineup of more than 400 mutual funds and exchange-traded funds, or ETFs. In line with Bogle’s philosophy of looking out for retail investors, many of these funds are passively managed and charge low fees. Here are the seven best Vanguard funds to buy and hold today.

Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Bogle was a fan of the two-fund portfolio, which consists of a total U.S. stock market and a total U.S. bond market fund. This is an extremely simple yet highly effective portfolio strategy that can help investors match the market’s average return net of fees. A common allocation for lower-risk, older investors is the 60/40 ratio of stocks to bonds, which is exactly what VBIAX does. The stock side of VBIAX tracks the Dow Jones U.S. Total Stock Market Index, while the bond side tracks the Bloomberg Aggregate Bond Index. Historically, the 60/40 portfolio has delivered very good risk-adjusted returns, with VBIAX itself posting an annualized 10-year return of 8.27%. VBIAX costs a low expense ratio of 0.07%.

Vanguard Wellington Fund Investor Shares (VWELX)

Not many funds can claim the distinction of surviving World War II, the 1987 stock market crash, the 2000 dot-com bubble, and the 2007 to 2009 Great Recession. But VWELX survived all of those. With an inception date of 1929, VWELX is the oldest balanced fund in the U.S. market. The fund holds a 65/35 allocation to stocks and bonds and employs active management. VWELX targets high-quality large- and mid-cap companies in out-of-favor industries with a focus on above-average dividend yields, low valuations and improving fundamentals. On the bond side, the fund holds a variety of investment-grade corporate bonds of all maturities, with some Treasury and mortgage-backed security exposure, all with a focus on good credit and low default risk. The active management approach has yielded solid results: Since 1929, VWELX has grown at a compound annual growth rate of 8.24%. The fund costs an expense ratio of 0.24%

Vanguard S&P 500 ETF (VOO)

VFINX might be long closed to new investors, but its spirit lives on in its successor, VOO, which also tracks the S&P 500. Unlike the previous funds on this list, VOO is an ETF. In contrast to mutual funds, investors can trade shares of VOO on an exchange throughout the day. The ETF structure also provides tax-efficiency benefits. The S&P 500 is a benchmark for many investors, and if your goal is to match its historically outstanding long-term return of around 10% annually (including dividends), VOO is a great option. The ETF charges a rock-bottom expense ratio of 0.03%, which means that your return net of fees is likely to be higher than comparable funds with higher fees.

Vanguard 500 Index Fund Admiral Shares (VFIAX)

Despite the popularity of ETFs, there’s still some very good reasons why investors might choose mutual funds instead. One of them is the ability to buy units in whatever increments you want. For example, to buy a single share of VOO, an investor would need at least $361.33 (as of its Dec. 7 closing price), unless their brokerage offers fractional shares. On the other hand, units in the mutual fund version of VOO, VFIAX, can be purchased in any dollar amount. This makes recurring scheduled purchases and dollar-cost averaging easier, especially for set-it-and-forget-it investors. That said, keep in mind that VFIAX requires a minimum $3,000 investment. The fund costs an expense ratio of 0.04%.

Vanguard Total Stock Market ETF (VTI)

The U.S. market doesn’t just end at the 500 companies in the S&P 500, though. Beyond the S&P 500, there’s another 3,000-plus mid- and small-cap companies worth investing in. As Jack Bogle put it: “Don’t look for the needle in the haystack — just buy the haystack!” For a truly passive approach to buying the entire investable U.S. stock market, investors can hold VTI, which tracks the CRSP Total Market Index. VTI holds over 4,000 large-, mid- and small-cap U.S. stocks weighted by their market capitalization. It makes for a great tax-loss harvesting partner for VOO given their different indexes, but similar overall composition. It also costs an expense ratio of 0.03%.

Vanguard Total International Stock ETF (VXUS)

From 2000 to 2009, the U.S. experienced a “lost decade” of stock market performance. During this time, the S&P 500’s return was virtually flat following three consecutive years of losses after the dot-com bubble, followed by a brutal crash during the Great Recession. Conversely, international markets, especially emerging ones like China, posted positive returns. A possible way of hedging against another period of stagnation in the U.S. market is via an allocation to international stocks. A good option here is VXUS, which holds over 7,900 stocks from developed markets like the U.K., France, Japan, Canada and Australia, and emerging markets like China, Brazil and Mexico. Buying VXUS is a great alternative to converting currency or using American depositary receipts. The ETF costs an expense ratio of 0.07%.

Vanguard Total World Stock ETF (VT)

Arguably, the most passive and hands-off way of investing in the stock market might be to buy all the stocks in the world. Obviously, this is impossible to do on your own, but Vanguard has gone out and simplified that with VT. This ETF holds more than 9,500 global stocks from dozens of countries, all 11 stock market sectors, and all market-cap sizes. Currently, the ETF is split approximately 60/40 between U.S. and international stocks. As the world’s markets change, VT will adjust and rebalance its holdings accordingly, so there’s no need to worry about which country is doing well or poorly. By holding VT and staying disciplined, investors can ensure they receive the average of the world’s stock market returns net of fees. Speaking of fees, VT charges an expense ratio of just 0.07% despite its complexity and scope.

7 best Vanguard funds to buy and hold:

— Vanguard Balanced Index Fund Admiral Shares (VBIAX)

— Vanguard Wellington Fund Investor Shares (VWELX)

— Vanguard S&P 500 ETF (VOO)

— Vanguard 500 Index Fund Admiral Shares (VFIAX)

— Vanguard Total Stock Market ETF (VTI)

— Vanguard Total International Stock ETF (VXUS)

— Vanguard Total World Stock ETF (VT)

More from U.S. News

10 Best Low-Cost Index Funds

Artificial Intelligence Stocks: The 10 Best AI Companies

7 Stocks That Outperform in a Recession

7 Best Vanguard Funds to Buy and Hold originally appeared on usnews.com

Update 12/08/22: This story was previously published at an earlier date and has been updated with new information.

Related Categories:

Latest News

More from WTOP

Log in to your WTOP account for notifications and alerts customized for you.

Sign up