For beginner investors embarking on their journey to build a solid investment portfolio, the array of options available can be quite daunting.
The investment landscape is filled with a plethora of mutual funds and exchange-traded funds, or ETFs, all featuring a wide array of exotic and alternative strategies.
Names and terms like “alpha,” “factor investing,” “smart beta,” “merger arbitrage,” “enhanced yield,” “covered call” and “high-yield credit” are often thrown around, accompanied by fancy marketing materials that can easily sway the uninitiated.
However, for those who are just starting out, particularly with a modest initial investment, the key is to embrace simplicity. There’s a strong argument to be made for sticking to the basics: a globally diversified portfolio comprising stocks, bonds and cash.
This approach is less about trying to predict which funds will outperform in the future and more about managing the easily controllable aspects of risk: lack of diversification, high fees and excessive turnover.
Poor diversification can expose investors to unnecessary risk if their portfolio is too heavily concentrated in certain stocks or sectors. High fees can eat into long-term returns, and excessive turnover can lead to higher transaction costs and tax inefficiencies.
Vanguard, known for its investor-friendly practices and cost-effective investment solutions, offers a range of 349 mutual funds and ETFs that align perfectly with these principles. These funds are ideal for beginners due to their affordability, accessibility and simplicity.
“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.”
Here are seven of the best Vanguard mutual funds and ETFs for beginner investors:
| Vanguard Fund | Expense Ratio |
| Vanguard S&P 500 ETF (ticker: VOO) | 0.03% |
| Vanguard Total Stock Market ETF (VTI) | 0.03% |
| Vanguard Total International Stock ETF (VXUS) | 0.07% |
| Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) | 0.05% |
| Vanguard Total International Bond Index Fund Admiral Shares (VTABX) | 0.11% |
| Vanguard LifeStrategy Growth Fund (VASGX) | 0.14% |
| Vanguard Target Retirement 2070 Fund (VSVNX) | 0.08% |
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Vanguard S&P 500 ETF (VOO)
Picking the right Vanguard fund as a beginner is a multi-step process, and August has some tips. “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.”
For example, a beginner investor who is planning for retirement decades away and wishes to maximize growth can opt for a low-cost S&P 500 index ETF like VOO. This ETF provides exposure to 500 of the largest and most prominent U.S. stocks for a low 0.03% expense ratio and 2.1% turnover rate. As a 100% equity ETF, VOO is fairly volatile, but has historically produced a strong 11.1% 10-year annualized return.
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,” says Sophoan Prak, a certified financial planner at Vanguard. “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 VOO, VTI is considerably more diversified. By tracking the CRSP U.S. Total Market Index, VTI goes beyond the S&P 500 to also track thousands of additional mid- and small-cap U.S. stocks. Hence, this ETF may be ideal for investors who wish to track the total investable U.S. stock market as opposed to a cross-section selected by a committee. VTI also charges a 0.03% expense ratio.
Vanguard Total International Stock ETF (VXUS)
“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 achieve this exposure, investors can pair VTI with an ETF like VXUS.
This ETF tracks the FTSE Global All Cap ex US Index, which currently holds over 8,500 large-, mid- and small-cap stocks from both developed and emerging markets. Countries such as Japan, the U.K., Canada, France, Switzerland and Germany hail from developed markets, whereas emerging markets encompass countries like China, India and Brazil. VXUS charges a 0.07% expense ratio.
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
“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.” For broad U.S. bond market exposure, investors can buy VBTLX, which tracks the Bloomberg U.S. Aggregate Float Adjusted Index.
This mutual fund is heavily diversified, featuring more than 10,000 bonds in its portfolio ranging in maturity from under one year to more than 25 years. The fund holds both government-issued Treasurys and investment-grade corporate bonds, and also holds some mortgage-backed securities. All this comes at a low 0.05% expense ratio, but there is a $3,000 minimum investment requirement.
[READ: 15 Best Dividend Stocks to Buy Now]
Vanguard Total International Bond Index Fund Admiral Shares (VTABX)
As with equities, investors can also gain benefits from diversifying their bond allocation internationally. Exploring government- and corporate-issued bonds from outside the U.S. can expose investors to potentially favorable currency movements and interest rate regimes, or hedge against the possibility of a U.S. credit crisis. For exposure to international bonds, consider VTABX.
This mutual fund currently holds more than 7,000 government- and corporate-issued bonds from both developed and emerging-market countries. To reduce volatility from fluctuating exchange rates, VTABX is also currency hedged. This means that the returns of the fund will be based on the performance of the underlying bonds, and not currency exchange rates. VTABX charges a 0.11% expense ratio.
Vanguard LifeStrategy Growth Fund (VASGX)
“Mutual funds offer a great way to gain broad exposure to a basket of securities,” Prak says. “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 can provide.” Trying to trade dozens, if not hundreds, of individual stocks and bonds can be time consuming and costly for retail investors.
For some investors, even trading and keeping track of four funds for domestic and international stock and bond exposure may be too much of a hassle. To alleviate this, Vanguard offers a lineup of LifeStrategy funds, which offer all-in-one exposure. VASGX is their aggressive option, featuring a split of 80% in global stocks and 20% in global bonds with a 0.14% expense ratio.
Vanguard Target Retirement 2070 Fund (VSVNX)
Another way beginner investors can stay as hands-off as possible is with a Vanguard target-date fund. These funds offer a preset portfolio of global stocks and bonds composed of other Vanguard mutual funds as their underlying holdings. They are also automated, meaning that they will periodically rebalance and eventually shift in strategy and composition over time.
Take VSVNX,for example. As its name suggests, this target-date fund is designed for younger investors looking to retire around 2070. Currently in 2023, the fund is split around 90% in stocks and 10% in bonds, which is an aggressive, growth-focused allocation. As the years pass, VSVNX will gradually adjust its holdings to decrease equities and add bonds on a “glidepath” to become more conservative.
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7 Best Vanguard Funds for Beginner Investors originally appeared on usnews.com
Update 11/27/23: This story was previously published at an earlier date and has been updated with new information.
