If you’re a self-directed investor looking to create a buy-and-hold portfolio with Vanguard mutual funds or exchange-traded funds (ETFs), you’ll have access to a fairly expansive lineup of 352 funds.
“Vanguard funds as well as other low-cost investment options are an efficient way for investors to gain exposure to both the overall market as well as specific market sectors,” says Robert F. Draper Jr., founder and chief investment officer of Draper Asset Management. “The usage of Vanguard funds removes the burden of specific security analysis.”
But if the sheer breadth of its fund lineup has you grappling with “analysis paralysis,” Vanguard has a handy step-by-step questionnaire to get you started with ease.
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By completing this questionnaire, you’ll get a suggested asset allocation, which is how your portfolio should be divided between stocks, bonds and cash. The questions asked will pertain to your investment objectives, time horizon, risk tolerance and knowledge.
If your answers to this questionnaire indicate a high risk tolerance and a long time horizon, you will likely be recommended an equity-heavy asset allocation, predominantly invested in stocks to maximize capital appreciation.
This approach is ideal for the buy-and-hold investor who can weather market volatility and is aiming for substantial long-term returns. However, such investors need to be comfortable with short-term fluctuations and possible unrealized losses.
Here are seven of the best Vanguard funds to buy and hold today:
| Fund | Expense ratio |
| Vanguard Total Stock Market ETF (ticker: VTI) | 0.03% |
| Vanguard 500 Index Fund Admiral Shares (VFIAX) | 0.04% |
| Vanguard Extended Market ETF (VXF) | 0.06% |
| Vanguard Dividend Appreciation Index Fund Admiral Shares (VDADX) | 0.08% |
| Vanguard Wellington Fund Investor Shares (VWELX) | 0.26% |
| Vanguard Target Retirement 2070 Fund (VSVNX) | 0.08% |
| Vanguard LifeStrategy Growth Fund (VASGX) | 0.14% |
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. This ETF is an extremely affordable way to access the broad U.S. stock market at a 0.03% expense ratio.
VTI’s low cost stems from its passive management strategy. Instead of actively picking stocks, the ETF simply replicates the CRSP U.S. Total Market Index, which holds stocks from all 11 sectors, including small, mid and large caps, and provides balanced exposure to growth and value styles. Another hallmark of VTI’s passive indexing approach is great tax efficiency, with a low 2.2% annual portfolio turnover rate.
Vanguard 500 Index Fund Admiral Shares (VFIAX)
VTI isn’t the only low-cost way investors can get exposure to U.S. stocks. If you prefer to focus on larger blue-chip stocks, then an S&P 500 index mutual fund like VFIAX could be a great alternative. Approximately 88% of all U.S. large-cap funds have underperformed the S&P 500 index over the past 15 years up to Dec. 31, according to the S&P Indices Versus Active (SPIVA) report.
VFIAX is cost effective, with a 0.04% expense ratio, and also tax efficient with a 2.2% turnover rate, but newer investors with smaller accounts may feel deterred by its $3,000 minimum investment requirement. To bypass this, you can invest in the Vanguard S&P 500 ETF (VOO), which is essentially VFIAX in ETF form with a 0.03% expense ratio. As an ETF, the cost to invest in VOO is the price of a single share, around $500.
Vanguard Extended Market ETF (VXF)
VTSAX and VTI are market-cap weighted. While they hold thousands of small caps and mid-caps, these stocks still compose a relatively small portion of their holdings. In comparison, the larger companies receive proportionately higher weights and tend to dominate the top holdings of both funds. To emphasize small- and mid-cap stocks more, a buy-and-hold investor can pair VXF with VFIAX.
For a 0.06% expense ratio, VXF tracks the S&P Completion Index, which holds virtually all U.S. stocks that are not contained in the S&P 500. With this ETF, you get access to over 3,500 holdings with a median market cap of around $7 billion, which is great exposure to mid-caps. However, be aware that this ETF has a higher turnover rate of 11% and is more volatile, with Vanguard rating it 5 out of 5 on its risk/reward scale.
Vanguard Dividend Appreciation Index Fund Admiral Shares (VDADX)
The feeling of seeing a high quarterly dividend payment rolling in might feel good psychologically, but it could also hamper your returns. For buy-and-hold investors, focusing on high dividend yields can come at the cost of total returns, and even result in lower tax efficiency. If you want to focus on dividend investing as a long-term strategy, a dividend growth fund like VDADX might be better.
This fund tracks the S&P U.S. Dividend Growers Index, which screens prospective holdings for at least 10 consecutive years of dividend growth. It also eliminates the top 25% highest-yielding stocks to weed out “yield traps” with shaky fundamentals. Right now, this fund is paying an above-average 1.7% 30-day SEC yield while charging a 0.08% expense ratio. However, it does require a $3,000 minimum investment.
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Vanguard Wellington Fund Investor Shares (VWELX)
“Launched in 1929, VWELX has seen it all — the Great Depression, World War II, the intense bear market of the 1970s, the subsequent bull market of the ’80s and ’90s, the global financial crisis and the COVID-19 pandemic, just to name a few,” says Brian Miller, senior investment specialist on the multi-asset solutions team at Vanguard. Since inception, VWELX has returned an annualized 8.3%.
The longevity of this fund stems from its actively managed, balanced strategy of allocating one-third to investment-grade bonds and two-thirds to undervalued dividend stocks screened for quality. However, it is less tax-efficient than the typical Vanguard index fund, with a 2.4% 30-day SEC yield and higher turnover rate, and pricier, with a 0.26% expense ratio. It has the usual $3,000 minimum investment requirement.
Vanguard Target Retirement 2070 Fund (VSVNX)
“Vanguard’s suite of target retirement funds can be a complete portfolio solution for investors who want a simple, globally diversified portfolio that adjusts its risk profile over time,” Miller says. “Simply pick the target date closest to when you plan to retire, and the fund allocates your assets to a low-cost mix of stocks and bonds that gradually gets more conservative as you approach retirement.”
If available in a 401(k) plan, a long-dated target retirement fund like VSVNX could be a great buy-and-hold investment for Gen Z investors. As its name suggests, this fund is intended for investors looking to retire around 2070. Currently, it is allocated for growth, with 90% in global stocks and 10% in global bonds, but this will change as the years pass. VSVNX charges a 0.08% expense ratio.
Vanguard LifeStrategy Growth Fund (VASGX)
If you prefer your fund to have a static asset allocation (that is, one that does not change over time), the Vanguard “LifeStrategy” lineup may be more appropriate for you. This lineup comprises four mutual funds, each of which offers a different allocation of stocks and bonds tailored toward income, conservative growth or moderate growth — or more aggressive growth, in the case of VASGX.
To achieve its growth objective, VASGX allocates 80% of its holdings toward global stocks and reserves 20% for global bonds. Periodically, Vanguard will rebalance the fund’s holdings back to these allocations. Since its inception in 1994, VASGX has returned an annualized 8.1%. The fund’s overall expense ratio, inclusive of its underlying holdings, works out to 0.14%.
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7 Best Vanguard Funds to Buy and Hold originally appeared on usnews.com
Update 07/02/24: This story was previously published at an earlier date and has been updated with new information.
