Vanguard’s mutual fund and exchange-traded fund (ETF) lineup currently spans 352 options, and there’s quite a few reasons beginner investors should consider them when constructing a portfolio.
“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 help instill trust and prioritize investor interests.”
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However, not all of these funds will be suitable for beginners. Some funds are locked-off altogether. These include funds restricted to advisor use only and institutional class funds, which can have minimum investment requirements in the millions.
There’s also a multitude of specialty funds that can provide advanced investors with targeted exposure to certain asset classes or sectors, but these may be too under-diversified for beginners.
For instance, the 11 sector ETFs Vanguard offers may be useful to a portfolio manager implementing a sector rotation strategy, but they can be too concentrated for a beginner. Similarly, Vanguard’s small suite of alternative funds that dabble in commodities and hedge fund-like strategies such as market-neutral investing may be too complex for the average beginner’s needs.
With this in mind, beginners should focus on two attributes that can help them minimize risk over the years: low fees and broad diversification.
Low fees are crucial because they minimize the predictable, constant drag on performance. Broad diversification is equally important as it reduces the risk associated with poor performance in any single geography, asset class, or sector.
Once you have identified Vanguard funds embodying both traits, experts suggest undertaking a two-part process to pick the right ones.
“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.”
Here are seven of the best Vanguard funds for beginners:
| Vanguard Fund | Expense Ratio | Year-to-date Return* |
| Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX) | 0.04% | 17.5% |
| Vanguard Total Stock Market ETF (VTI) | 0.03% | 16.2% |
| Vanguard Total International Stock ETF (VXUS) | 0.08% | 7.9% |
| Vanguard Total Bond Market ETF (BND) | 0.03% | 0.6% |
| Vanguard Dividend Appreciation ETF (VIG) | 0.06% | 11.7% |
| Vanguard LifeStrategy Growth Fund (VASGX) | 0.14% | 10.3% |
| Vanguard Target Retirement 2070 Fund (VSVNX) | 0.08% | 11.5% |
*As of July 22.
Vanguard 500 Index Fund Admiral Shares (VFIAX)
“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.” A great fund to buy and hold long term is VFIAX.
This fund charges a low 0.04% expense ratio, or $4 annually for a $10,000 investment. It tracks the S&P 500, a very popular benchmark of 500 large U.S. stocks from all 11 market sectors. With a minimal 2.2% portfolio turnover rate, it is quite tax efficient. However, it does require a $3,000 minimum investment, but you can bypass this by buying the Vanguard S&P 500 ETF (VOO) instead.
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,” Prak says. “For example, investors who buy the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) obtain broad exposure to large-, mid- and small-cap U.S. companies, providing a good representation of the broader domestic market.”
However, beginner investors with smaller accounts may be deterred by VTSAX’s $3,000 minimum requirement. A viable alternative is VTI, which tracks the same CRSP US Total Market Index as VTSAX does and holds the same 3,674 stocks. The cost of investing in VTI is a 0.03% expense ratio and the minimum required investment is the price of a single share at around $270.
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Vanguard Total International Stock ETF (VXUS)
“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.” To achieve this, a beginner investor can pair either VFIAX or VTI with an international equity ETF like VXUS.
VXUS’ benchmark is the FTSE Global All Cap ex US Index, which holds more than 8,500 large-, mid- and small-cap stocks from both developed and emerging markets. The former includes countries like Canada, Japan, the U.K. and Switzerland, whereas the latter includes countries like China, India and Brazil. The ETF charges a 0.08% expense ratio and can be purchased for around $61 per share.
Vanguard Total Bond Market ETF (BND)
“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.” By adding a bond fund to a combination of VTI and VXUS, beginner investors can create the classic “three-fund portfolio,” a highly diversified strategy.
Beginner investors should consider sticking to a low-cost aggregate bond ETF like BND. This ETF tracks the Bloomberg U.S. Aggregate Float Adjusted Index, a benchmark of more than 11,200 investment-grade corporate bonds, mortgage-backed securities and U.S. Treasury bonds of multiple maturities. It charges a 0.03% expense ratio and currently pays a 4.5% 30-day SEC yield with monthly distributions.
Vanguard Dividend Appreciation ETF (VIG)
“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.”
By focusing on blue-chip stocks with at least 10 years of dividend growth while excluding the highest-yielding quartile, VIG is able to provide a quality tilt at a low 0.06% expense ratio. The top holdings include Microsoft Corp. (MSFT), Apple Inc. (AAPL), Broadcom Inc. (AVGO), JPMorgan Chase & Co. (JPM), Exxon Mobil Corp. (XOM) and UnitedHealth Group Inc. (UNH), all of which have excellent balance sheets.
Vanguard LifeStrategy Growth Fund (VASGX)
You can create a diversified three-fund portfolio by mixing and matching VTI, VXUS, and BND, but you can also stay hands-off via an all-in-one Vanguard fund. “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, the growth-oriented pick is VASGX, which uses a “fund of funds” structure to target 80% in global stocks and 20% in global bonds, rebalanced periodically. It charges a 0.14% expense ratio and requires a $3,000 minimum investment.
Vanguard Target Retirement 2070 Fund (VSVNX)
“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.” If you wanted to retire around 2070, the fund to pick is VSVNX.
This fund currently features 90% in stocks and 10% in bonds but will change over time. “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 more conservative.” VSVNX charges a 0.08% expense ratio and requires a $1,000 minimum investment.
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7 Best Vanguard Funds for Beginner Investors originally appeared on usnews.com
Update 07/23/24: This story was previously published at an earlier date and has been updated with new information.
