Warren Buffett, renowned value investor and chairman and CEO of Berkshire Hathaway Inc. (ticker: BRK.A, BRK.B), has long been an advocate for the buy-and-hold investment strategy.
He once famously wrote in a shareholder letter, “Our favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint.”
However, it’s important to recognize that the average retail investor does not share the same advantages as Buffett and Berkshire Hathaway, such as close relationships with management, a substantial war chest of cash to deploy, a unique ability to assess company value and a near-perpetual investment horizon.
[Sign up for stock news with our Invested newsletter.]
For most investors, the key takeaway from Buffett’s approach is the importance of letting winners run. Considering that a few stocks often drive the majority of market returns, failing to hold onto these winners over the long term can result in underperformance.
Yet, identifying these outperformers in advance is a difficult task, one that even professional fund managers often fail at; according to the S&P Indices Versus Active (SPIVA) study, over the past 15 years, 89% of large-cap U.S. funds have underperformed the S&P 500.
Echoing the philosophy of the late Vanguard chairman John Bogle, rather than seeking the proverbial needle in the haystack, retail investors are better off buying the entire haystack.
This means investing in a broadly diversified portfolio that spans various sectors, countries and company sizes, thereby increasing the likelihood of capturing those key outperformers without extensive research and stock picking. You can easily put this idea in play with low-cost Vanguard 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.”
Here are seven of the best Vanguard funds to buy and hold today:
| Fund | Expense ratio |
| Vanguard Wellington Fund Investor Shares (VWELX) | 0.26% |
| Vanguard Balanced Index Fund Admiral Shares (VBIAX) | 0.07% |
| Vanguard 500 Index Fund Admiral Shares (VFIAX) | 0.04% |
| 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 Stock Index Fund Admiral Shares (VTWAX) | 0.10% |
| Vanguard Target Retirement 2060 Fund (VTTSX) | 0.08% |
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. This active Vanguard fund is the buy-and-hold strategy personified.
VWELX’s strategy hinges on a balanced portfolio of two-thirds in stocks and one-third in bonds. The stocks are large and mid-cap companies selected for quality, above-average dividend yields and low valuation multiples. For bonds, VWELX favors intermediate duration, investment-grade issuers. Since inception, VWELX has returned an annualized 8.3% before tax. The fund charges 0.26%.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
Buy-and-hold investors looking for a cheaper alternative to VWELX can buy VBIAX, which charges just 0.07%. This mutual fund uses the classic strategy of 60% in stocks and 40% in bonds to achieve a balanced blend of risk and return. For stocks, VBIAX tracks the CRSP U.S. Total Market Index. For bonds, the fund benchmarks to the Bloomberg U.S. Aggregate Float Adjusted Index.
Outside of rare years like 2022 where stocks and bonds fell together, VBIAX has historically delivered a competitive return for investors. Over the past 10 years, the fund has returned an annualized 8.5% before tax. According to Vanguard, the fund’s 0.07% expense ratio is significantly cheaper than the average expense ratio of similar balanced funds, which sit at around 0.82%.
Vanguard 500 Index Fund Admiral Shares (VFIAX)
Buy-and-hold investors who find the balanced composition of VWELX and VBIAX too conservative for their liking might find VFIAX appealing. This fund tracks the S&P 500 index, which as noted earlier has outperformed the majority of large-cap funds. VFIAX is a 100% equity fund that does not hold any bonds, making it most suitable for investors with a long time horizon and high risk tolerance.
One of the major benefits of VFIAX is tax efficiency. Thanks to a low 2.2% portfolio turnover rate and a since-expired Vanguard patent that allowed for exchange-traded fund (ETF) share classes, VFIAX has not historically made large capital gains distributions. It is also very affordable, with a 0.04% expense ratio. However, you’ll need at least a minimum $3,000 initial investment to access this fund.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
VTSAX tracks the CRSP U.S. Total Market Index, which as noted earlier comprises the 60% stock allocation in VBIAX. This benchmark is designed to provide investors with comprehensive exposure to the U.S. stock market. It spans all 11 market sectors and includes small-, mid- and large-cap stocks weighted by market capitalization. Its passive nature also keeps turnover low for VTSAX at just 2.2%.
VTSAX is considered fairly diversified, as it holds over 3,600 stocks. However, because it is market-cap-weighted, the fund is still tilted strongly toward large-cap stocks with a median market cap of $179 billion. Practically, this means that the top holdings of VTSAX and VFIAX are very similar, and both funds have recorded virtually identical returns. VTSAX charges a 0.04% expense ratio.
[READ: 7 Best Long-Term ETFs to Buy and Hold]
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
VTSAX’s diversification falls short in one aspect: geography. It only holds stocks from the U.S. market, which despite its dominance and prominent size isn’t the only option available to investors. Beyond U.S. stocks, investors can also buy into international developed markets like the U.K., France, Germany, Japan and Switzerland, or emerging markets like China, India and Brazil.
Thankfully, Vanguard has a fund to target all these stocks in the form of VTIAX. This fund tracks the FTSE Global All Cap ex U.S. Index, which holds over 8,600 market-cap-weighted companies. As with most Vanguard funds, low turnover at 3.9% and a reasonable 0.12% expense ratio make this a great option for buy-and-hold investors who believe in international diversification.
Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
A portfolio combining VTSAX and VTIAX provides diversification across U.S., developed and emerging markets. However, investors will still need to decide what proportions to allocate to each fund and when, if ever, to rebalance. To minimize the number of decisions and transactions needed, a buy-and-hold investor can replace both VTSAX and VITAX with a one-ticker global equity fund like VTWAX.
The FTSE Global All Cap Index tracked by VTWAX is designed to provide market-cap-weighted exposure to the world’s investable stock market, subject to liquidity and accessibility constraints. Currently, it encompasses over 9,900 holdings at a minimal 4.3% portfolio turnover rate. It is also economical, with a 0.1% expense ratio. As with many Vanguard funds, VTWAX requires a $3,000 minimum investment.
Vanguard Target Retirement 2060 Fund (VTTSX)
“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.”
Funds like VWELX and VBIAX have a static asset allocation. That is, they will always rebalance back to their target stock and bond proportions. In contrast, a target-date fund like VTTSX is dynamic. As the years pass, VTTSX will adjust its portfolio to become more conservative, favoring bonds over stocks. By 2060, the fund will be optimized for income and capital preservation instead of growth.
More from U.S. News
7 Best Vanguard Bond Funds to Buy
Vanguard vs. Fidelity: Which Is Better for You?
5 Best BlackRock ETFs to Buy and Hold
7 Best Vanguard Funds to Buy and Hold originally appeared on usnews.com
Update 10/07/24: This story was previously published at an earlier date and has been updated with new information.
