As investors reflect on their portfolio’s performance for 2023, it’s worth considering how they fared against the popular S&P 500. Did you manage to beat the market?
If you found that your investments underperformed, take solace in the fact that you’re not alone — in fact, even professional fund managers often struggle to outperform this benchmark.
This is underscored by the latest update to the S&P Indices Versus Active, or SPIVA study, which assesses fund performance against various index benchmarks.
For the one-year period ending June 30, 2023, the SPIVA study revealed that 60.9% of all U.S. large-cap funds underperformed the S&P 500.
More strikingly, this gap between fund performance and the benchmark widens significantly over time. After five years, 86.6% of funds lag behind the S&P 500, and by the 15-year mark, an incredible 92.2% of funds fall short.
So instead of trying to pick the next hot fund in 2024, consider focusing instead on controllable elements with your investment selection. This primarily entails the level of diversification and fees paid, both of which are critical factors that can significantly impact long-term returns if not properly managed.
[Sign up for stock news with our Invested newsletter.]
In this context, Vanguard funds emerge as a compelling choice. The firm’s investor-owned structure inherently aligns with the goal of minimizing fees, leading to a substantial difference in their funds’ expense ratios compared to the industry average.
For instance, Vanguard’s average exchange-traded fund, or ETF, and mutual fund expense ratio stands at just 0.08%, compared to the industry average of 0.47%.
“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.”
Here are some of the best Vanguard funds to buy and hold, from its current selection of 267 mutual funds and 84 ETFs:
| Vanguard Fund | Expense Ratio |
| Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX) | 0.04% |
| Vanguard Total Stock Market ETF (VTI) | 0.03% |
| Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) | 0.11% |
| Vanguard Total World Stock ETF (VT) | 0.07% |
| Vanguard Dividend Appreciation ETF (VIG) | 0.06% |
| Vanguard Wellington Fund Investor Shares (VWELX) | 0.25% |
| Vanguard Target Retirement 2070 Fund (VSVNX) | 0.08% |
Vanguard 500 Index Fund Admiral Shares (VFIAX)
To track the S&P 500 net of a small fee, investors can use VFIAX. This Admiral Shares mutual fund requires a $3,000 minimum investment but charges a very low 0.04% expense ratio. This fund has been a powerhouse over the past decade, returning an annualized 12% over the 10-year trailing period ending Dec. 31, 2023. The fund also charges no purchase, redemption or 12b-1 fees.
That being said, the $3,000 minimum investment may be a deterrent to newer investors with smaller accounts. A viable alternative here is the fund’s ETF equivalent, the Vanguard S&P 500 ETF (VOO). VOO currently trades at around $432 per share but can be purchased in smaller amounts if a brokerage platform offers fractional shares. It is also slightly cheaper with a 0.03% expense ratio.
Vanguard Total Stock Market ETF (VTI)
“I still believe that a quality ETF for a long-term growth portfolio from Vanguard is VTI, especially for investors who are not really near retirement and have the ability to invest monthly in up or down markets,” says Jim Penna, senior manager of retirement services at VectorVest Inc. “VTI holds all of the ‘Magnificent 7’ stocks, so it’s a nice way to capture all seven of the names.”
These seven outperforming stocks — Apple Inc. (AAPL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Nvidia Corp. (NVDA), Alphabet Inc. (GOOGL, GOOG), Meta Platforms Inc. (META) and Tesla Inc. (TSLA) — all sit in the top holdings of VTI thanks to the ETF’s market-cap-weighted benchmark, the CRSP U.S. Total Market Index. The ETF charges a low 0.03% expense ratio.
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
U.S. stocks may have outperformed over the last decade, but that hasn’t always been the case. From 1999 to 2009, they lost to both international stocks and bonds, crushed by losses during the 2000 dot-com bubble and the 2008 financial crisis. To hedge against this, investors should consider diversifying to the stock markets of other countries, which can pick up the slack should U.S. markets lag.
A low-cost way to invest internationally is via VTIAX, which tracks the FTSE Global All Cap ex U.S. Index. This fund encompasses both developed markets like Germany, France, Canada, the U.K. and Japan; and also emerging markets like China, India and Brazil. With more than 8,500 market-cap-weighted stocks, this fund offers very high diversification. It charges a 0.11% expense ratio.
[SEE: 7 Best Monthly Dividend Stocks to Buy Now.]
Vanguard Total World Stock ETF (VT)
VT is a remarkable embodiment of the equity side of Harry Markowitz’s concept of the “market portfolio” — a theoretical construct that holds every investable asset according to their market-cap-weighted proportions. By tracking the FTSE Global All Cap Index, VT holds more than 9,600 stocks from U.S., developed international markets and emerging markets for a 0.07% expense ratio.
VT’s current allocation, which comprises approximately 60% U.S. stocks, 30% from developed international markets and 10% from emerging markets, is a dynamic representation of the global equity landscape. As markets around the world grow or shrink, the composition of VT adjusts accordingly. This feature of VT ensures that investors are always aligned with the prevailing global market trends.
Vanguard Dividend Appreciation ETF (VIG)
Dividends play a crucial role in the total returns of an investment portfolio, particularly for buy-and-hold investors. When dividends are reinvested, they can significantly contribute to the compounding growth of an investment over time via a snowballing effect. This reinvestment strategy turns dividend payouts into a powerful tool for long-term wealth accumulation, as opposed to just a source of present income.
Taking this strategy a step further is VIG, which tracks the S&P U.S. Dividend Growers Index. This approach doesn’t just seek companies that pay dividends, but those that have a long history of increasing them. The result is a portfolio of quality blue-chip stocks like Microsoft, Apple, UnitedHealth Group Inc. (UNH), Exxon Mobil Corp. (XOM) and JPMorgan Chase & Co. (JPM) for a 0.06% expense ratio.
Vanguard Wellington Fund Investor Shares (VWELX)
Vanguard may be known for its robust suite of low-cost, passive index funds, but the firm also has some actively managed funds worth considering, too. These funds rely on the expertise of portfolio managers and proprietary rulesets for selecting and managing investments, and often attempt to outperform a benchmark. An example of one with a long history of success is VWELX.
With a debut date of 1929, this fund is one of the oldest mutual funds still in existence. By allocating two-thirds to undervalued blue-chip dividend stocks and one-third to high-quality bonds, VWELX has historically offered excellent performance. From inception to Dec. 31, 2023, this fund has compounded at an annualized 8.3% return. VWELX charges a 0.25% expense ratio and requires a $3,000 minimum investment.
Vanguard Target Retirement 2070 Fund (VSVNX)
Young investors looking to set and forget their 401(k) or Roth IRA for long-term growth can consider buying and holding a target-date fund like VSVNX. This mutual fund essentially offers a globally diversified portfolio of stocks and bonds on autopilot, adjusting its mix over time as investors age and both their risk tolerance and time horizon decreases.
Currently, VSVNX is 90% stocks and 10% bonds. As the years pass, the fund will gradually increase its bond allocation and decrease its stock allocation to become more conservative. By the target retirement date of 2070, the fund will be heavily in bonds and less so in stocks to reduce risk and increase income. VSVNX charges a 0.08% expense ratio and requires a $1,000 minimum investment.
More from U.S. News
The 7 Best Vanguard Funds for Retirement
10 of the Best Stocks to Buy for 2024
7 Dividend Stocks to Buy and Hold Forever
7 Best Vanguard Funds to Buy and Hold originally appeared on usnews.com
Update 01/04/24: This story was published at an earlier date and has been updated with new information.
