The “buy and hold” strategy is a timeless, easy-to-implement investment approach that emphasizes long-term growth over short-term market fluctuations. Investors who subscribe to this strategy patiently hold investments in their portfolio, reinvesting dividends and ignoring market noise.
Legendary investor Warren Buffett aptly captured this philosophy when he remarked, “Our favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.”
Yet, while the allure of holding an investment indefinitely is tempting, the reality is that individual stocks can be unpredictable. As history reminds us, even seemingly stable blue-chip stocks like General Electric Co. (ticker: GE) and Eastman Kodak Co. (KODK) have experienced dramatic long-term downturns, challenging the notion of holding any single stock “forever.”
Therefore, for those who subscribe to the buy and hold philosophy, mutual funds and exchange-traded funds, or ETFs, may offer a more diversified and resilient path. When it comes to fund breadth and affordability, few firms can rival Vanguard’s list of offerings.
According to Vanguard, the average mutual fund and ETF in their lineup sports an expense ratio 83% less than the industry average, with an average expense ratio of 0.08% as of Dec. 31, 2022. Some retail-accessible Vanguard ETFs and mutual funds charge expense ratios as low as 0.03%, or just $3 annually for a $10,000 investment. Moreover, the firm charges no fees to trade Vanguard ETFs and mutual funds on its brokerage platform and does not impose transaction fees or sales loads on its funds.
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“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.”
Vanguard’s commitment to low fees stems from not only its economy of scale, but also its corporate 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.”
By placing investor welfare before earnings and profits, Vanguard has made low fees part and parcel of its investment philosophy. Thanks to this, investors who buy and hold Vanguard funds can ensure they earn more over time compared to those holding high expense ratio funds. “Cost is important, as a fund’s expense ratio comes directly out of the performance that an investor will earn,” Dusina says.
Here’s a look at seven of the best Vanguard funds to buy and hold from their lineup of 266 mutual funds and 82 ETFs:
| Vanguard Fund | Expense Ratio |
| Vanguard Total Stock Market ETF (VTI) | 0.03% |
| Vanguard S&P 500 ETF (VOO) | 0.03% |
| Vanguard Total Bond Market Index Fund ETF (BND) | 0.03% |
| Vanguard Balanced Index Fund Admiral Shares (VBIAX) | 0.07% |
| Vanguard Total World Stock Index Fund Admiral Shares (VTWAX) | 0.10% |
| Vanguard LifeStrategy Growth Fund (VASGX) | 0.14% |
| Vanguard Target Retirement 2060 Fund (VTTSX) | 0.08% |
Vanguard Total Stock Market ETF (VTI)
Investors looking to match the long-term average returns of the U.S. stock market can use an ETF like VTI for maximum exposure. By tracking the CRSP US Total Market Index, VTI encompasses more than 3,800 domestic stocks from all 11 market sectors, both equity and growth styles, and across small-, mid- and large-cap companies. All this comes at a very affordable 0.03% expense ratio.
The ETF hasn’t been a slouch either in terms of performance. Over the last 10 years through July 31, 2023, VTI has returned an annualized 12.1% with dividends reinvested. Year to date as of July 31, 2023, the ETF is up 20.3%. For a broad bet on the overall long-term performance of the U.S. stock market, few ETFs or mutual funds can rival VTI’s breadth and affordability.
Vanguard S&P 500 ETF (VOO)
A popular tax-loss harvesting partner for VTI is VOO, which also costs 0.03% but tracks the narrower S&P 500 index. Unlike the CRSP US Total Market Index, the S&P 500 only holds about 500 large- and mid-cap stocks. That being said, the market-cap weighted methodology employed by both indexes results in similar historical performance. For example, VOO has returned an annualized 12.6% over the last decade.
Historically, the S&P 500 has been a fantastic long-term buy-and-hold asset for risk-tolerant investors owing to its competitive performance. Consider the results of the latest S&P Indices Versus Active, or SPIVA, scorecard from S&P Dow Jones, which 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.
[READ: 6 of the Best AI ETFs to Buy for 2023]
Vanguard Total Bond Market Index Fund ETF (BND)
Buy-and-hold investors can vary greatly in terms of their risk tolerance and time horizon. Some may be willing to accept higher volatility for potentially greater long-term growth, while others may prioritize safety of principal over a shorter period. For the latter, an allocation to bonds can help dampen volatility and reduce drawdowns. The Vanguard ETF to consider here is BND, which charges a 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. By tracking a variant of the benchmark Bloomberg U.S. Aggregate Bond Index, BND provides diversified exposure to over 10,000 U.S. government Treasury bonds and investment-grade corporate bonds ranging from one to more than 25 years in maturity.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
By combining VTI and BND in various proportions, buy-and-hold investors can create a diversified portfolio of U.S. stocks and bonds tailored to their risk tolerance. However, this approach still requires occasionally purchasing more shares, rebalancing the portfolio and reinvesting dividends. For an even more hands-off alternative, a moderate allocation mutual fund like VBIAX can be a viable alternative.
VBIAX invests 60% of its assets in stocks represented by the CRSP US Total Market Index and 40% in bonds represented by the Bloomberg U.S. Aggregate Float Adjusted Index. This strategy is known as the “60/40 portfolio,” and it has historically offered a good blend of risk and return. All this comes in at a low 0.07% expense ratio, but investors should be aware that VBIAX requires a $3,000 minimum investment.
Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
A shortcoming of ETFs like VTI and VOO and mutual funds like VBIAX is a lack of international diversification. All of these funds only hold an allocation to U.S. stocks. While the domestic stock market has historically outperformed, it may not in the future. Long-term buy-and-hold investors may therefore consider diversifying internationally to developed and emerging market stocks as well.
A great all-in-one mutual fund to consider here is VTWAX. This fund tracks a variant of the FTSE Global All Cap Index, which holds more than 9,500 market-cap weighted stocks from not only the U.S., but also Europe, the Pacific and emerging markets like China, Brazil and India. VTWAX currently charges a 0.1% expense ratio and requires a $3,000 minimum investment.
Vanguard LifeStrategy Growth Fund (VASGX)
For even greater diversification and simplicity, investors can choose a managed fund like VASGX. This moderate allocation fund targets an asset allocation of 80% in stocks and 20% in bonds, both of which are globally diversified. Periodically, VASGX will rebalance its portfolio composition back to this target allocation, which helps maintain a steady risk profile.
The target mix for VASGX is 48% CRSP US Total Market Index, 32% FTSE Global All Cap ex US Index, 14% Bloomberg U.S. Aggregate Float Adjusted Index, and 6% Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index. Like most Vanguard Admiral Shares funds, VASGX requires a $3,000 minimum investment. The fund charges a 0.14% expense ratio.
Vanguard Target Retirement 2060 Fund (VTTSX)
Vanguard LifeStrategy funds like VASGX are designed to maintain a static asset allocation at all times. However, as investors age, their risk tolerance tends to change. For a fund that adapts over time as you age, consider VTTSX, one of Vanguard’s target-date funds. This fund is specifically designed for investors looking to retire on or around the year 2060 and charges a 0.08% expense ratio.
Currently, VTTSX’s portfolio is split about 90% in stocks and 10% in bonds, both of which are globally diversified. As the years pass, the fund will gradually adjust its asset allocation on a “glide path” to become more conservative. This generally entails decreasing the stock allocation and increasing the bond allocation. When 2060 rolls around, VTTSX will be much more bond-heavy in order to reduce risk.
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7 Best Vanguard Funds to Buy and Hold originally appeared on usnews.com
Update 08/08/23: This story was previously published at an earlier date and has been updated with new information.
