Investing can be a labyrinth for beginners, and finding the right place to start often becomes a daunting task. With all the different firms and funds out there competing for your hard-earned money, picking the right investment now and sticking to it can be difficult, especially for newcomers.
Fortunately, the industry has some tried and true players with an established reputation for being particularly beginner friendly. A notable firm here is Vanguard, which currently operates 266 mutual funds and 82 exchange-traded funds, or ETFs, most of which boast traits particularly desirable for beginner investors, such as low fees, high diversification and transparency.
“Beginner investors should consider Vanguard funds for their low costs, diversification across asset classes and regions, simplicity and robust investor education resources,” says Sean August, CEO of The August Wealth Management Group. “In addition, Vanguard’s reputable status and client-owned mutual structure helps instill trust and prioritizes investor interests.”
Having access to Vanguard funds can help beginner investors avoid costly mistakes with poor individual stock picks.
“Mutual funds and ETFs offer a great way to gain broad exposure to a basket of securities,” says Sophoan Prak, a certified financial planner and financial advisor at Vanguard. “The average person may not have the time or expertise to analyze and build a portfolio of individual stocks/bonds to reap the diversification benefits mutual funds or ETFs can provide.”
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Beginner investors can easily mix and match low-cost, passively managed Vanguard index funds to create their ideal portfolio, or even stay completely hands off with a Vanguard target-date fund. When it comes to selecting the right Vanguard funds, August has some tips for beginners.
“Firstly, assessing the fund’s investment objective is crucial to ensure alignment with personal investment goals, whether it involves growth, income or a combination of both,” August says. “Next, evaluate the fund’s risk profile to match it with your risk tolerance, and compare expense ratios, as lower costs can maximize investment returns.”
With that in mind, here’s a look at seven of the best Vanguard mutual funds and ETFs for beginner investors:
| Vanguard fund | 10-year return |
| Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX) | 12% |
| Vanguard Total Stock Market ETF (VTI) | 11.4% |
| Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) | 4.2% |
| Vanguard Total World Stock ETF (VT) | 8.1% |
| Vanguard Total Bond Market ETF (BND) | 1.4% |
| Vanguard LifeStrategy Growth Fund (VASGX) | 7.3% |
| Vanguard Target Retirement 2060 Fund (VTTSX) | 8% |
Vanguard 500 Index Fund Admiral Shares (VFIAX)
Beginner investors who are young and willing to take on risk in exchange for potentially higher growth may like a 100% stock fund. In this case, few funds can outperform the S&P 500
index, a benchmark of roughly 500 companies selected to be representative of U.S. stock market performance. To track this index, a low-cost, passively managed pick to buy is VFIAX.
VFIAX’s strategy is simple: to track the returns of the S&P 500 index as closely as possible by replicating its underlying portfolio of companies, less a small fee. Currently, this mutual fund charges a 0.04% expense ratio, or around $4 annually for a $10,000 investment. Over the last 10 years, VFIAX has returned an annualized 12% with all dividends reinvested.
Vanguard Total Stock Market ETF (VTI)
“We believe investors can benefit from the diversification of a market-weighted portfolio that provides exposure to the broader market,” Prak says. “For example, investors who buy VTI obtain broad exposure to large-, mid- and small-cap U.S. companies, providing a good representation of the broader domestic market.”
Compared to VFIAX, VTI is considered more diversified.
While the S&P 500 is fairly diversified, its index only tracks about 500 large- and mid-cap stocks. In contrast, the CRSP US Total Market Index tracked by VTI holds nearly 4,000 stocks, including small caps. Despite this, VTI’s market-cap weighted methodology has resulted in a similar performance to VFIAX over the last 10 years, returning an annualized 11.4% with dividends reinvested.
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
“For even broader diversification, investors can benefit from including international stocks to their portfolio mix,” Prak says. “Vanguard’s research supports having approximately a 40% exposure to international stocks in order to create a portfolio that is less volatile over the long term.”
To passively index stocks from ex-U.S. markets, investors can buy VTIAX.
This mutual fund tracks the FTSE Global All Cap ex US Index, which holds over 7,700 stocks from developed markets like Japan, the U.K., Canada, France and Switzerland, but also emerging markets like China, India and Brazil. The fund charges a 0.11% expense ratio, which is more expensive than domestic stock funds due to the cost of indexing international equities.
[SEE: 7 Best International Stock Funds to Buy in 2023]
Vanguard Total World Stock ETF (VT)
For even greater simplicity, investors opt for VT, which basically combines a U.S. equity fund with an international ex-U.S. equity fund for a globally diversified portfolio. “VT provides passive market-weighted exposure to both domestic and international stocks,” Prak says. Currently, VT is split between around 60% U.S. and 40% international, which reflects the world’s current stock market composition.
It’s important to remember that the FTSE Global All Cap Index tracked by VT is dynamic. Should the U.S. stock market no longer be the dominant component moving forward, the index will adjust its weightings to reflect that. In the event that, say, China’s stock market grows rapidly and expands, VT’s portfolio will subsequently include a greater allocation to Chinese equities. The ETF charges a 0.07% expense ratio.
Vanguard Total Bond Market ETF (BND)
“Your investment goals, time horizon and risk tolerance should be the driver for your portfolio’s overall stock and bond asset mix,” Prak says. “If you’re closer to retirement, consider adding some bonds to the asset mix to reduce the volatility of the portfolio.” A great option for broad bond diversification is BND, which tracks the Bloomberg U.S. Aggregate Float Adjusted Index.
“BND has exposure to U.S Treasury, mortgage and asset-backed securities, and investment-grade corporate bonds that are of short-, intermediate- and long-term maturity dates for broad diversification,” Prak says. Given the difficulties of trading individual bond issues over the counter, beginners can simplify their bond allocation massively by just buying BND. The ETF charges a 0.03% expense ratio.
Vanguard LifeStrategy Growth Fund (VASGX)
By buying VT and BND in various proportions, beginner investors can create a complete, broadly diversified portfolio of stocks and bonds, but there is a catch. Periodically, investors will need to rebalance the portfolio back to its target asset allocation. This can be difficult for beginners to stick to, especially given the time needed and the urge to tinker. A managed fund can be a good alternative here.
A possible candidate is VASGX, which is part of Vanguard’s LifeStrategy lineup. These funds offer a complete portfolio in one ticker using preset asset allocation strategies. In the case of VASGX, the fund offers 80% in U.S. and international stocks, and 20% in U.S. and international bonds via various underlying index funds, along with periodic rebalancing. All this comes at a 0.14% expense ratio.
Vanguard Target Retirement 2060 Fund (VTTSX)
For an even more hands-off fund, investors can consider a target-date fund. Whereas LifeStrategy funds like VASGX will adhere strictly to a static 80/20 allocation, target-date funds like VTTSX are more dynamic. As time goes on, VTTSX will become more conservative by dialing back its stock allocation, while simultaneously increasing its bond allocation on a glidepath.
Currently, VTTSX is split approximately 90% in U.S. and international stocks, and 10% in U.S. and international bonds. This is an aggressive asset allocation best suited for a young, risk-tolerant investor looking to retire around 2060. As the years pass, VTTSX will become more and more bond heavy to target capital preservation and present income goals. The fund charges a 0.08% expense ratio.
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7 Best Vanguard Funds for Beginner Investors originally appeared on usnews.com
Update 06/09/23: This story was previously published at an earlier date and has been updated with new information.
