When it comes to selecting funds, beginner investors should focus on the “knowns” rather than the “unknowns.”
The latter include unpredictable variables such as whether a fund will outperform in the future, the relative performance of growth versus value stocks, which sectors will excel or which countries’ stock markets will come out on top.
Over-emphasizing these “unknowns” can lead investors down a risky path. Behavioral effects such as recency bias — where investors give too much weight to recent events while disregarding historical data — can cloud judgment, potentially causing investors to buy overvalued assets.
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The bandwagon effect can cause investors to buy stocks or funds simply because they feel others are doing the same, potentially leading to buying at peaks and selling at troughs — common behaviors that can erode long-term investment returns.
By myopically focusing on the uncontrollable elements of investing, you might find yourself overreacting to market “noise” and sensationalist headlines, rather than making informed decisions based on evidence or solid, long-term strategies.
“Investing involves taking on risk, and it can take time for the long-term rewards of investing to overcome short-term volatility in the markets,” says Sophoan Prak, a certified financial planner and financial advisor at Vanguard. “So, you should be prepared to hold on to your investments for at least five or 10 years, and ideally much longer.”
Instead, it’s more beneficial to concentrate on what you can control. This includes keeping fees as low as possible, minimizing turnover — which measures how frequently a fund’s holdings change — maintaining diversification across sectors and geographies, and ensuring your investments are tax-efficient.
Once these factors are prioritized, beginner investors with a long time horizon can then employ a two-part process to align fund selection with their circumstances.
“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,” says Sean August, CEO of August Wealth Management Group. “Next, evaluate the fund’s risk profile to match it with your risk tolerance, and compare expense ratios.”
Here are seven of the best Vanguard mutual funds and exchange-traded funds (ETFs) for beginners, chosen based on this criteria and input from investment experts:
| Fund | Expense Ratio |
| Vanguard Balanced Index Fund Admiral Shares (ticker: VBIAX) | 0.07% |
| Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) | 0.04% |
| Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) | 0.12% |
| Vanguard Total World Bond ETF (BNDW) | 0.05% |
| Vanguard LifeStrategy Growth Fund (VASGX) | 0.14% |
| Vanguard Target Retirement 2030 Fund (VTHRX) | 0.08% |
| Vanguard U.S. Quality Factor ETF (VFQY) | 0.13% |
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
“Beginner investors should consider Vanguard funds for their low costs, diversification across asset classes and regions, simplicity, and robust investor education resources,” August says. “In addition, Vanguard’s reputable status and client-owned mutual structure help instill trust and prioritize investor interests.” For long-term investors with a moderate risk tolerance, a fund like VBIAX is a good pick.
This balanced fund follows the classic strategy of keeping 60% in U.S. stocks while retaining 40% in U.S. bonds. This “60/40” strategy has historically provided an excellent risk-adjusted return, with the stocks delivering solid performance while the bonds dampen volatility. All this can be accessed at a low 0.07% expense ratio, but you’ll need to invest at least $3,000 to start with VBIAX.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
“We believe investors can benefit from the diversification of a market-weighted portfolio that provides exposure to the broader market,” Prak says. “For example, investors who buy VTSAX obtain broad exposure to large-, mid- and small-cap U.S. companies, providing a good representation of the broader domestic market.” For this exposure, VTSAX charges a low 0.04% expense ratio.
By passively tracking the CRSP U.S. Total Market Index, VTSAX delivers exposure to over 3,700 domestic stocks, while keeping portfolio turnover very low at just 2.2%. As such, it is a tax-efficient option for gaining U.S. stock exposure. For investors looking to avoid the $3,000 minimum investment, it is also available as the Vanguard Total Stock Market ETF (VTI) for the price of a single share at around $261.
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
“For even broader diversification, investors can benefit from including international stocks in 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.” For this role, a great fund to pair with VTSAX is VTIAX, which charges a 0.12% expense ratio.
VTIAX tracks the FTSE Global All Cap ex U.S. Index, which currently holds over 8,600 market-cap weighted equities from both developed and emerging markets. As with most Vanguard Admiral Shares funds, VTIAX requires a $3,000 minimum investment. However, you can sidestep this by opting for the ETF version, the Vanguard Total International Stock ETF (VXUS), which costs around $61 per share.
Vanguard Total World Bond ETF (BNDW)
“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.” An allocation to high-quality bonds can lower volatility and provide steady, above-average income potential.
For maximum diversification when it comes to bond investing, consider BNDW. This ETF tracks the Bloomberg Global Aggregate Float Adjusted Composite Index using a “fund of funds” structure. It currently holds both the Vanguard Total Bond Market ETF (BND) and the Vanguard Total International Bond Market ETF (BNDX) in roughly equal proportions. BNDW charges a 0.05% expense ratio.
[SEE: 9 of the Best Bond ETFs to Buy Now.]
Vanguard LifeStrategy Growth Fund (VASGX)
VBIAX’s balanced 60/40 allocation may not suit more aggressive or conservative investors. However, Vanguard has other fund lineups to fill this gap. “For investors who want a low-cost, globally diversified portfolio of stocks and bonds that maintains a consistent risk position, there’s the Vanguard LifeStrategy Funds,” says Michael Roach, head of multi-asset portfolio management at Vanguard.
“The LifeStrategy Funds feature a consistent asset allocation at various levels of risk (i.e., 80% stocks and 20% bonds, 60/40, 40/60 and 20/80),” Roach explains. For example, a younger investor prioritizing growth may opt for the 80/20 allocation via VASGX. This fund is globally diversified on both the stock and bond sides and charges a 0.14% expense ratio. It also requires the usual $3,000 minimum investment.
Vanguard Target Retirement 2030 Fund (VTHRX)
“The Vanguard Target Retirement Funds offer a globally diversified portfolio of stocks and bonds in a single fund that changes its asset allocation as investors move closer to retirement,” Roach says. “Investors need only to pick the fund with the date closest to when they expect to retire, and the Target Retirement Fund takes care of the rest.” For example, an investor retiring in 2030 should pick VTHRX.
VTHRX currently holds around 38% in bonds, but this wasn’t always the case. “When investors are just starting to save for retirement in their 20s and 30s, the funds maintain a more aggressive allocation to stocks,” Roach explains. “As investors get closer to retirement, the allocation gets increasingly more conservative.” VTHRX currently charges a 0.08% expense ratio and requires a $1,000 minimum investment.
Vanguard U.S. Quality Factor ETF (VFQY)
“Less experienced investors may benefit from focusing on well-diversified funds with an emphasis on higher-quality securities,” says David James, managing director at Coastal Bridge Advisors. “Inevitably, the markets will correct at some point and that is likely to touch any newbie’s nerves, but knowing that you own high-quality securities can help them get through a tough period of time.”
The Vanguard ETF to watch here is VFQY, which uses a proprietary rules-based, quantitative model to select U.S. stocks with strong profitability and healthy balance sheets. The result is a portfolio of 367 blue-chip stocks like Apple Inc. (AAPL), Walmart Inc. (WMT), 3M Co. (MMM) and Nike Inc. (NKE). Despite not passively tracking an index, VFQY is still quite affordable at a 0.13% expense ratio.
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7 Best Vanguard Funds for Beginner Investors originally appeared on usnews.com
Update 05/28/24: This story was previously published at an earlier date and has been updated with new information.
