Despite countless investment fads — think Beanie Babies, non-fungible tokens (NFTs) and some cryptocurrencies — one asset class has remained the cornerstone of long-term wealth creation: equities.
For steady, reliable growth, investing in the common stocks of publicly listed companies still makes the most sense. Owning equities means holding an ownership stake in businesses. Your returns over time come from several key sources.
[Sign up for stock news with our Invested newsletter.]
The first is multiple expansion, which happens when a company becomes more attractive to investors over time. Whether through improved sentiment or broad economic trends, other investors might just be willing to pay more for the company than when you bought it.
This phenomenon explains the skyrocketing valuations seen during the dot-com bubble or the COVID-19 stimulus era. Companies didn’t necessarily earn more, but investors were willing to pay higher multiples on earnings. However, multiple expansion can be unpredictable and deflate just as quickly.
Earnings growth is more durable and consistent. For instance, take a consumer staples company like Coca-Cola Co. (ticker: KO). Over time, if management is able to execute, it should sell more beverages, expand into new territories, and find ways to cut costs and improve margins.
These efforts translate to higher earnings per share (EPS), which is your share of the company’s profit. This increasing profitability can lead to higher stock prices and better returns for you as an investor.
Even for blue-chip companies that have reached maturity and no longer grow earnings at an above-average rate, they can still return value to shareholders. For example, share buybacks reduce the number of outstanding shares, meaning your stake in the company becomes larger without you buying more.
Similarly, dividends provide direct cash payments, giving you the flexibility to reinvest in higher-growth opportunities or use the funds as needed. When a company can no longer earn returns that exceed its cost of capital, returning cash to shareholders often becomes the best way to create value.
Taken together, multiple expansion, earnings growth, dividends and buybacks form a robust case for why equities should remain the backbone of a long-term, buy-and-hold portfolio for most investors.
But if picking individual stocks isn’t your strength, or simply isn’t of interest, investing through mutual funds or exchange-traded funds (ETFs) is a great way to delegate. And there are few better places to start than Vanguard.
The firm’s investor-owned structure minimizes conflicts of interest and aligns its goals with those of its investors. This structure incentivizes developing better investment solutions over just accumulating assets under management and charging fees.
Here are seven of the best Vanguard funds to buy and hold today:
| Fund | Expense ratio |
| 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 Wellington Fund Investor Shares (VWELX) | 0.26% |
| Vanguard Balanced Index Fund Admiral Shares (VBIAX) | 0.07% |
| Vanguard Target Retirement 2060 Fund (VTTSX) | 0.08% |
Vanguard 500 Index Fund Admiral Shares (VFIAX)
“The S&P 500 index should be a staple of every investor’s portfolio,” says Henry Yoshida, CEO and co-founder of Rocket Dollar. This popular stock market benchmark tracks 500 large-cap U.S. stocks selected for earnings quality, liquidity and prominence, by both a committee and a transparent rules-based methodology. For exposure to the S&P 500, the Vanguard mutual fund to buy is VFIAX.
VFIAX charges a 0.04% expense ratio. For a $10,000 investment, this works out to just $4 in annual fees. Over the past 10 years, VFIAX has delivered an annualized 13.3% total return before taxes. If the $3,000 minimum investment requirement of this fund is too much, you can also opt for the Vanguard S&P 500 ETF (VOO), which trades at around $558 per share, or less if your brokerage offers fractional shares.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
The S&P 500 is a solid choice when it comes to broad U.S. equity exposure, but it isn’t the only option. If you want even greater diversification, consider the CRSP U.S. Total Market Index, which holds over 3,600 companies. For exposure to this benchmark, Vanguard offers VTSAX at a 0.04% expense ratio and a $3,000 minimum investment. As with VFIAX, VTSAX also has an ETF option available.
“VTSAX gives you complete exposure to the entire U.S. stock market from the Magnificent Seven down to thousands of publicly traded small- and mid-cap stocks that could become the next Nvidia Corp. (NVDA) of the future,” Yoshida says. “Personally, it represents the majority of my personal investment portfolio since it is so diversified, low-cost and tax efficient — you can buy this fund and hold it forever.”
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
Both VFIAX and VTSAX focus on U.S.-listed stocks. While some of the large-cap holdings in each fund have extensive overseas operations, they are not considered foreign. If you only hold VFIAX or VTSAX, you’re missing out on exposure to international markets. This includes developed markets like the U.K. and Japan, and emerging markets like China and India. For exposure, consider VTIAX.
VTIAX tracks the FTSE Global All Cap ex U.S. Index. For a 0.12% expense ratio, it delivers exposure to more than 8,600 market-capitalization-weighted stocks across developed and emerging markets. “If you are a believer in the global economy and have a contrarian tilt, this fund could be a great addition to your portfolio,” Yoshida says. It is also available as the Vanguard Total International Stock ETF (VXUS).
Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
Combining VTSAX and VTIAX creates a globally diversified equity portfolio, but with some complexities. Investors have to decide how much to allocate to each fund and how often to rebalance — and avoid the urge to tinker or chase past performance. To keep matters simple, consider replacing both VTSAX and VTIAX with VTWAX, which tracks the FTSE Global All Cap Index for a 0.1% expense ratio.
VTWAX is designed to provide one-stop exposure to the global equity market. Its portfolio of over 9,800 stocks is weighted by market capitalization, covers all 11 stock market sectors, and spans U.S., international developed, and emerging-market countries. If you want to avoid the $3,000 minimum required investment, VTWAX is also available as the Vanguard Total World Stock ETF (VT).
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. Today, VWELX ranks among the oldest balanced mutual funds.
Unlike the previous funds, VWELX does not track a benchmark index and is not 100% allocated to equities. It currently follows a 65-34 split between quality blue-chip stocks with above-average dividend yields and low valuations, and investment-grade corporate bonds. The rest is held in short-term reserves. The fund charges a 0.26% expense ratio and has delivered a strong 8.4% annualized total return (before taxes) since inception.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
VWELX may have delivered stellar historical returns for investors, but the actively managed strategy results in higher fees and portfolio turnover, the latter of which decreases tax efficiency. A cheaper alternative in the balanced mutual fund category is VBIAX. This fund follows a 60-40 strategy, split between total U.S. stock market exposure and aggregate U.S. bond market exposure.
Historically, VBIAX has delivered a decent risk-adjusted return. Outside of anomalous years like 2022 where bonds fell alongside stocks, the fund has generally experienced lower volatility and drawdowns compared to a 100% equity fund. This makes VBIAX better suited for long-term investors with a lower risk tolerance. It charges a reasonable 0.07% expense ratio, much lower than VWELX.
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.”
Unlike VWELX and VBIAX, the asset allocation of Vanguard’s target retirement funds will change over time. For instance, VTTSX — which is designed for investors retiring around 2060 — is currently 90% global stocks and 10% global bonds. But as the years pass, the fund will gradually increase bond allocations and decrease stock weightings on a “glide path” to reduce risk, in line with an investor’s shortening time horizon.
More from U.S. News
7 Best Vanguard Index Funds to Buy
7 Best Vanguard Bond Funds to Buy
Vanguard vs. Fidelity: Which Is Better for You?
7 Best Vanguard Funds to Buy and Hold originally appeared on usnews.com
Update 12/09/24: This story was previously published at an earlier date and has been updated with new information.
