One of the main factors that can significantly affect an investor’s long-term net returns are fees. This can take the form of fund expense ratios, sales loads or commissions charged when investors trade in a brokerage account. Like returns, fees can compound over time, with great negative impact.
Consider the following example. From 2007 to June 30, the Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX) posted a compound annual growth rate, or CAGR, of 9.3%. In contrast, the similar Rydex S&P 500 Class H (RYSPX) returned a much lower CAGR of 7.7%. The culprit? High expense ratios, with RYSPX charging 1.56% compared to VFIAX at just 0.04%. On a $10,000 investment, that works out to $156 in fees annually for RYSPX versus just $4 with the Vanguard fund.
“Very few, if any, investors should be paying 1% each year for basic investment advice and portfolio management,” says Jordan Taylor, an independent financial advisor at Core Planning. “Vanguard does a great job of trying to provide as many low-cost investment options as they can, something many asset management firms fail to do.”
This difference underscores why for so many decades, investors have turned to low-cost Vanguard funds for their portfolios. For a long-term, buy-and-hold strategy, the low fees and economies of scale offered by Vanguard funds have been hard to beat, largely thanks to a unique organizational structure.
“Vanguard is investor owned, meaning the fund shareholders own the funds, which in turn own Vanguard,” says Daniel Dusina, director of investments at Blue Chip Partners Inc. “This aligns interests between the firm and its clients — since the clients are the owners of the firm, there are fewer conflicting priorities.”
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By placing investors at the forefront of its mission, Vanguard has made low fees core to its fund lineup. Collectively, Vanguard mutual funds and exchange-traded funds, or ETFs, boast an expense ratio that is 83% below the industry average, standing at an average of 0.08% as of Dec. 31, 2022. “Cost is important, as a fund’s expense ratio comes directly out of the performance that an investor will earn,” Dusina says.
With a current lineup of 266 mutual funds and 82 ETFs available, investors of all risk tolerances, objectives and time horizons can find something from Vanguard to suit their strategy. Thanks to this breadth, creating a customized, diversified and cheap investment portfolio has never been more accessible.
Here’s a look at seven of the best Vanguard funds to buy and hold in 2023:
| Vanguard Fund | Expense Ratio |
| Vanguard S&P 500 ETF (VOO) | 0.03% |
| Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) | 0.04% |
| Vanguard Total Bond Market Index Fund ETF (BND) | 0.03% |
| Vanguard Balanced Index Fund Admiral Shares (VBIAX) | 0.07% |
| Vanguard Target Retirement 2070 Fund (VSVNX) | 0.08% |
| Vanguard Dividend Appreciation ETF (VIG) | 0.06% |
| Vanguard Total World Stock ETF (VT) | 0.07% |
Vanguard S&P 500 ETF (VOO)
For a low-cost, straightforward way to passively invest in the U.S. stock market, investors can opt for VOO, which tracks the S&P 500. “VOO provides access to the stocks of 500 of the most established public companies in the U.S. economy at a 0.03% expense ratio,” Taylor says. This currently includes names like Apple Inc. (AAPL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN) and more.
Historically, the S&P 500 has been very difficult for actively managed funds to outperform, especially over longer periods of time. For example, the latest S&P Indices Versus Active, or SPIVA, scorecard from S&P Dow Jones found that as of Dec. 31, 2022, 93.4% of all U.S. large-cap funds have underperformed the S&P 500 over the last 15 years.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
John “Jack” Bogle, the late founder and chairman of Vanguard, famously said: “Don’t look for the needle in the haystack — just buy the haystack.” Bogle’s passive investing philosophy has spawned an investing community of his modern-day adherents, called “Bogleheads.” A common mantra espoused by some Bogleheads online when describing their investment strategy is “VTSAX and relax.”
This refers to the practice of investing one’s portfolio mostly in VTSAX, a low-cost Vanguard mutual fund that tracks the Dow Jones U.S. Total Stock Market Index. By doing so, Bogleheads are betting on the overall long-term performance of the entire investable U.S. stock market, agnostic as to which sector or equity style, such as growth or value, does better. The fund charges a low 0.04% expense ratio.
Vanguard Total Bond Market Index Fund ETF (BND)
Not all investors have the risk tolerance to handle the volatility of a 100% equity fund like VOO or VTSAX. For these investors, an allocation toward high-quality fixed-income assets can help lower risk, especially during a recession or market crash. For a low-cost bond ETF, Vanguard offers BND, which tracks the Bloomberg U.S. Aggregate Float Adjusted Index at a low 0.03% expense ratio.
“BND is an easy solution for capturing fixed income in a portfolio and diversifying away from some equity risks,” Taylor says. The ETF is highly diversified, as its benchmark index captures some 10,000-plus U.S.-government-issued Treasurys and investment-grade corporate bonds of maturities ranging from one to more than 25 years. However, the ETF does not include inflation-protected or tax-exempt bonds.
[10 Best Low-Cost Index Funds to Buy]
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
Investors seeking a blend of equity and bond exposure in a single fund may find VBIAX attractive. This fund offers a balanced approach, typically maintaining a 60% allocation to stocks and a 40% allocation to bonds, allowing for both growth potential and income generation. Its expense ratio is low at 0.07%, but the fund does require a $3,000 minimum investment.
VBIAX is an ideal solution for those wanting to diversify their portfolios across primary asset classes. It utilizes a dual-index approach, tracking the CRSP US Total Market Index for its equity component and the Bloomberg U.S. Aggregate Float Adjusted Index for the bond component. This ensures broad market exposure spanning thousands of U.S. stocks and bonds of various maturities.
Vanguard Target Retirement 2070 Fund (VSVNX)
For some buy-and-hold investors, the strategy offered by VBIAX may fall short. For one, the fund doesn’t offer an allocation to international stocks or bonds, which could offer diversification benefits. Moreover, it utilizes a static 60% stocks and 40% bonds allocation strategy, which may not be suitable for all investors. A viable long-term alternative is VSVNX, a target-date fund.
As a “fund of funds,” VSVNX invests in four other Vanguard mutual funds, offering a mix of equity and fixed-income assets from both domestic and international markets. Following a glide path approach, VSVNX gradually adjusts its asset allocation over time to become more conservative by holding more bonds and less stocks. The fund charges a 0.08% expense ratio. Note that as a target-date fund, it’s intended for investors with a 2070 retirement date, but can be utilized by folks of any age. Just keep in mind that if you’re 10 years away from retirement, the fund may be a bit more aggressive than you’d like, depending on your risk tolerance.
Vanguard Dividend Appreciation ETF (VIG)
Buy-and-hold investors interested in a dividend-oriented strategy can get a “dividend snowball” rolling via an ETF like VIG. This ETF tracks the S&P U.S. Dividend Growers Index, which doesn’t focus on stocks with high dividend yields. In fact, VIG only pays a moderate 30-day SEC yield of 1.8%. Instead, the ETF emphasizes stocks with at least 10 years of consecutive dividend growth.
By focusing on stocks that have a track record of increasing their dividends every year, VIG has historically outperformed its high-yield counterpart, the Vanguard High Dividend Yield ETF (VYM). With dividends reinvested, VIG has returned an annualized 11.6% over the last 10 years, compared to 9.9% for VYM. The ETF also charges a fairly low 0.06% expense ratio.
Vanguard Total World Stock ETF (VT)
For buy-and-hold investors seeking maximum diversification, the broadest equity ETF Vanguard has in terms of geographical representation is VT, which tracks the FTSE Global All Cap Index. This ETF currently holds over 9,500 small-, mid- and large-cap stocks from developed and emerging markets around the world. It also spans both growth and value equity styles with coverage across all 11 market sectors.
By buying and holding VT, long-term investors can bet on the continued upward growth of the global market, without worrying about a single country’s market or a specific market sector underperforming. Essentially, this ETF enables investors to participate in global economic growth, while also benefiting from geographical diversification that can potentially reduce volatility. VT charges a 0.07% expense ratio.
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7 Best Vanguard Funds to Buy and Hold originally appeared on usnews.com
Update 07/10/23: This story was previously published at an earlier date and has been updated with new information.
