Set your holding period to “forever” with these low-risk, low-cost mutual funds and ETFs.
The “Oracle of Omaha” Warren Buffett once famously said “our favorite holding period is forever.” What Buffett meant by this was that investors who owned high-quality stocks should maintain a long-term perspective in the face of market volatility. However, properly identifying a portfolio of high-quality stocks is harder than it seems. Knowing which stocks are safe and profitable to hold long term is something even professional fund managers struggle with. To avoid this problem, consider investing in low-cost mutual funds and exchange-traded funds, or ETFs, from firms like Vanguard. Vanguard offers investors a suite of more than 400 mutual funds and ETFs, most of which boast low fees and high diversification. The company’s funds are a great way to kick-start a long-term investment portfolio with little research or stock market knowledge required. Here are the seven best Vanguard funds to buy and hold in 2023.
Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX)
Investors looking to buy and hold the most well-known stock market index worldwide can invest in VFIAX, which tracks the S&P 500 index. This mutual fund holds 500 large-cap U.S. stocks selected by an S&P Dow Jones Committee to be representative of the overall U.S. stock market. Thanks to its transparent low-turnover indexing methodology, VFIAX charges very low fees. Currently, the mutual fund costs an expense ratio of just 0.04%, or $4 annually for a $10,000 investment. All else being equal, lower fees means greater long-term returns for investors. The fund has performed very well historically, returning an annualized 12.6% over the last 10 years as of Jan. 31, 2023. However, the fund does require a $3,000 initial investment.
Vanguard S&P 500 ETF (VOO)
The ETF equivalent of VFIAX is VOO. Unlike VFIAX, shares of VOO trade throughout the day on exchanges. While the net asset value of VFIAX is priced once a day at market close, the share price of VOO will fluctuate throughout the trading day as investors buy and sell. Finally, the minimum required investment for VOO is simply the price of a single share, which is around $378 as of Feb. 3, 2023. Otherwise, VOO performs virtually identically to VFIAX given that they track the same index and have similar holdings. The ETF is slightly cheaper with an expense ratio of 0.03%.
Vanguard Total Stock Market ETF (VTI)
The S&P 500 index is a good proxy for the overall U.S. market, but it doesn’t hold all of the stocks in the U.S. market. Outside of its 500 constituent companies, there’s another 3,000 or so mid-, small- and micro-cap companies that make up the rest of the U.S. market. While these companies make up a tiny proportion of the market, including them is nonetheless a good idea for truly passive investors who wish to “buy the haystack.” A good ETF to implement this approach with is VTI, which tracks the CRSP Total Market Index. Around 80% of VTI is weighted toward the stocks held in VOO, with the remainder held in mid- and small-cap stocks not represented in the S&P 500. Historically, VTI has performed similar to VOO, which makes it a good potential tax-loss harvesting partner. VTI also costs an expense ratio of 0.03%.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
VFIAX, VOO and VTI are all funds that hold 100% equities. While this can maximize returns, it can also result in higher-than-desired volatility and drawdowns during market crashes. For older investors and those with a lower risk tolerance, an allocation to high-quality bonds may be desirable. For an all-in-one approach, investors can buy VBIAX, which offers a balanced 60/40 portfolio of stocks and bonds in a single ticker. The ETF tracks two indexes, the Dow Jones U.S. Total Stock Market Index and the Bloomberg Aggregate Bond Index, respectively. Historically, the 60/40 portfolio has offered a great blend of risk and return. Since its inception in November 2000, VBIAX has returned an annualized 6.3%. The fund charges a 0.07% expense ratio and also requires a $3,000 minimum investment.
Vanguard Wellington Fund Investor Shares (VWELX)
Vanguard also has some popular actively managed funds for those seeking the chance to outperform. One of the more notable is VWELX, which has a storied performance history dating back to 1929. As the oldest balanced mutual fund in the U.S., VWELX survived World War II, the 1987 Black Monday crash, the 2000 dot-com bubble, the 2008 financial crisis and the 2020 COVID-19 crash. Since inception the fund has an average annual return of 8.2% — remarkable performance for a fund that’s been around for 94 years. VWELX’s portfolio strategy targets a mix of 65/35 stocks and bonds. The fund primarily holds large- and mid-cap stocks with above-average dividend yields, low valuation metrics and quality fundamentals. On the bond side, VWELX targets a higher allocation of investment-grade corporate bonds than the average balanced ETF to ensure greater returns. VWELX charges a 0.24% expense ratio and requires a $3,000 minimum investment.
Vanguard Wellesley Income Fund Investor Shares (VWINX)
VWELX has a lower-risk, income-oriented cousin in the form of VWINX. This fund is allocated much more conservatively at one-third stocks and one-third bonds. For its stock allocation, VWINX focuses on U.S. dividend stocks with a history of paying above-average yields and increasing payouts. For its bond allocation, VWINX primarily holds intermediate-duration investment-grade corporate bonds screened for a combination of quality and decent yield. While not as long-lived as VWELX, VWINX still has a performance history dating back to July 1970. Since inception, the fund has returned an annualized 9.3%. The fund’s 30-day SEC yield of 3.8% is paid out on a quarterly basis and could be desirable for retirees seeking higher income. VWINX also charges a 0.24% expense ratio and requires a $3,000 minimum investment.
Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
Investors willing to tolerate the risk of a 100% stock portfolio can opt for VTWAX for maximum diversification. This ETF provides investors with a globally diversified, market-cap-weighted portfolio of more than 9,400 stocks. Around 60% of this ETF is held in U.S. markets, with 30% in international developed markets and 10% in emerging markets. VTWAX makes sense as a forever buy-and-hold due to its completely hands-off and passive nature. By buying VTWAX, investors are essentially investing in the world’s stock market, which provides maximum diversification. As the markets of different countries rise and fall, VTWAX’s composition will change accordingly, which ensures that investors are receiving the average global market return at any given time. The fund charges a 0.1% expense ratio and requires a $3,000 minimum investment.
7 best Vanguard funds to buy and hold:
— Vanguard 500 Index Fund Admiral Shares (VFIAX)
— Vanguard S&P 500 ETF (VOO)
— Vanguard Total Stock Market ETF (VTI)
— Vanguard Balanced Index Fund Admiral Shares (VBIAX)
— Vanguard Wellington Fund Investor Shares (VWELX)
— Vanguard Wellesley Income Fund Investor Shares (VWINX)
— Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
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7 Best Vanguard Funds to Buy and Hold originally appeared on usnews.com
Update 02/07/23: This story was previously published at an earlier date and has been updated with new information.
