In today’s fast-paced, 24/7, globally connected financial markets, investors are constantly bombarded with news, updates and changes that can send them into a flurry of activity. This year in particular has presented no shortage of developments for market participants to grapple with.
From the ongoing U.S. debt ceiling crisis and the prospect of a government shutdown to Fitch Ratings’ unexpected downgrade of U.S. government debt and the startling number of regional bank bankruptcies in spring 2023, there was no shortage of volatility-inducing events to rattle investors.
Yet, amidst this constant noise, savvy investors might find solace in the wisdom of Benjamin Graham, often referred to as “the father of value investing.” Graham famously stated: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
Graham’s adage emphasizes that while short-term market movements can be influenced by popular opinion, in the grander scheme of things, the market will reflect the true value of assets. It’s a reminder to focus on fundamentals and long-term prospects rather than getting swayed by temporary noise.
Therefore, the best action might indeed be inaction. For investors armed with a low-cost, diversified portfolio, adhering to a buy-and-hold strategy and resisting the urge to make rash decisions based on fleeting news can often prove prudent over the long term.
In this regard, Vanguard funds emerge as a compelling choice for those seeking to embody this philosophy. According to Vanguard’s own data, as of Dec. 31, 2022, the average mutual fund and exchange-traded fund, or ETF, that it offers boasts an expense ratio 83% less than the industry average, sitting at a mere 0.08%.
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“Very few, if any, investors should be paying 1% each year for 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.”
Daniel Dusina, director of investments at Blue Chip Partners Inc., agrees with Taylor, noting: “Cost is important, as a fund’s expense ratio comes directly out of the performance that an investor will earn.” By minimizing the drag from high fees, investors can maximize the power of compounding returns over the long haul.
Here are seven of the best Vanguard mutual funds and ETFs to buy and hold:
| Vanguard Fund | Expense Ratio |
| Vanguard S&P 500 ETF (ticker: VOO) | 0.03% |
| Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) | 0.04% |
| Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) | 0.11% |
| Vanguard Total World Stock ETF (VT) | 0.07% |
| Vanguard Total Bond Market ETF (BND) | 0.03% |
| Vanguard Small-Cap Value ETF (VBR) | 0.07% |
| Vanguard Wellington Fund Investor Shares (VWELX) | 0.25% |
Vanguard S&P 500 ETF (VOO)
Investors interested in tracking one of the world’s most prominent market benchmarks, the S&P 500, can do so via VOO. This passively managed ETF purchases and holds all of the S&P 500’s securities in their respective proportions, which allows it to tightly track the index. With a 0.03% expense ratio, this ETF also ranks among the cheapest in the U.S. ETF industry.
Historically, VOO has also provided very good results, with an annualized 10-year return of 11.9% as of Sept. 30 that closely tracks its benchmark, the S&P 500 index. The S&P has been notoriously hard to beat — the latest S&P Indices Versus Active, or SPIVA, report shows 92.2% of all U.S. large-cap funds underperforming the index over the trailing 15 years as of June 30.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
The late John C. Bogle, founder of Vanguard, famously once said: “Don’t look for the needle in the haystack. Just buy the haystack!” Bogle was of the opinion that trying to identify the minority of market-beating stocks was a fool’s errand. Instead, by buying and holding a total U.S. stock market fund, investors could capture the returns of these select few stocks and more with little to no effort.
VTSAX embodies Bogle’s philosophy of “buying the haystack.” By tracking the CRSP US Total Market Index, the fund holds some 3,800-plus large-, mid- and small-cap stocks that are weighted by market capitalization across all 11 sectors. By buying and holding VTSAX, investors are making a long-term bet on the continued strength of the U.S. economy. The fund charges a low 0.04% expense ratio.
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
Investors wishing to diversify further can choose to complement VTSAX with VTIAX in various proportions. By doing so, they can gain exposure to more than 7,900 international stocks from outside the U.S. market at a 0.11% expense ratio. The FTSE Global All Cap ex US Index tracked by VTIAX includes both developed and emerging markets stocks, weighted by market cap.
Developed markets include countries with mature economies like Japan, the U.K., France, Switzerland and Germany, while emerging markets include countries with burgeoning economies such as China, India, Brazil and South Africa. By buying VTIAX, investors can access international stocks without converting currency or using American depositary receipts, or ADRs. The fund charges a 0.11% expense ratio.
[SEE: 7 Dividend Stocks to Buy and Hold Forever]
Vanguard Total World Stock ETF (VT)
Investors can create a globally diversified stock portfolio by combining VTSAX and VTIAX in various proportions. However, this still requires ongoing rebalancing and resisting the urge to tinker, chase recent performance or dump a laggard fund. To further simplify matters, investors can opt for a one-fund solution like VT, which tracks the FTSE Global All Cap Index.
To put it simply, VT is essentially the world’s investable stock market distilled into an all-in-one ETF. Roughly 60% of its portfolio is composed of U.S. stocks, with about 30% in developed countries and 10% in emerging markets. The ETF is highly diversified, with more than 9,500 holdings weighted by market cap. It also charges a very reasonable expense ratio of 0.07%.
Vanguard Total Bond Market ETF (BND)
A buy-and-hold strategy often used by “Bogleheads” — a term referring to adherents of Jack Bogle’s passive investment philosophy — is the “three-fund portfolio.” This consists of a U.S. total stock market fund, an international total stock market fund and a U.S. aggregate bond fund, with the exact allocations of each one determined by an investor’s risk tolerance and time horizon.
For the bond fund portion, Vanguard offers BND, which tracks the Bloomberg U.S. Aggregate Float Adjusted Index. This index currently holds over 10,000 investment-grade corporate bonds, U.S. Treasury bonds and mortgage-backed securities of various maturities. At present, the ETF has a duration of 6.4 years against a yield-to-maturity of 4.9%. BND charges a 0.03% expense ratio.
Vanguard Small-Cap Value ETF (VBR)
Some specialty ETFs like VBR track indexes designed to provide exposure to investment factors determined by research to contribute to outperformance over a benchmark. The two factors VBR targets are size and value, referring to the historical outperformance of smaller stocks over their larger peers and of undervalued stocks over their growth-oriented peers.
Therefore, investors who believe the research and who are willing to try to outperform the market over the long run can potentially do so via VBR. This ETF tracks the CRSP US Small Cap Value Index, which gives it a median market cap of $5.6 billion and a price-to-book ratio of 1.7, compared with VOO’s median market cap of $199.7 billion and median price-to-book ratio of 4.1. VBR charges a 0.07% expense ratio.
Vanguard Wellington Fund Investor Shares (VWELX)
Most Vanguard funds are passively managed, meaning that they simply track a benchmark index. However, the firm also offers some effective actively managed funds that seek to outperform a benchmark. A long-standing example is VWELX, which was founded in 1929. Since its inception, the fund has posted a compound annual growth rate of 8.2% as of Sept. 30.
VWELX’s strategy begins by allocating two-thirds of its portfolio to stocks and one-third to bonds. On the stock side, VWELX’s managers select large- and mid-cap companies that offer above-average dividends, low valuations and good fundamentals. For bonds, the fund primarily holds investment-grade corporate debt, with some government and mortgage-backed bonds. VWELX charges a 0.25% expense ratio.
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7 Best Vanguard Funds to Buy and Hold originally appeared on usnews.com
Update 10/05/23: This story was previously published at an earlier date and has been updated with new information.
