Founded on the simple concept that a mutual fund company should not have outside investors, Vanguard has quickly come to the forefront of the investing sphere thanks to its simple buying process, a massive assortment of fund options and rock-bottom fees. Today, Vanguard manages over $7.2 trillion in assets and is the world’s largest provider of mutual funds.
Investing in Vanguard mutual funds is easy, but you’ll first need to choose which funds to buy. We’ve created a guide detailing some of the best mutual funds currently available through Vanguard’s site to help make your selection easier.
Quick Look at the Best Vanguard Mutual Funds:
How to Get Started Investing in Vanguard Mutual Funds
The best way to purchase Vanguard mutual funds is to create an account directly through the company’s website or go with another brokerage that offers Vanguard funds. Compare the brokerages where you can purchase Vanguard mutual funds below.
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Then, Pick the Vanguard Mutual Funds That are Best for You
Index funds, mutual funds, and ETFs, oh my! Many investors are confused at the array of fund types when it comes to crafting a retirement or stock portfolio. Understanding and being able to differentiate these three common types of assets can help you better build a more diversified IRA or 401(k) account, allowing you to mix fund types to suit your individual needs.
A mutual fund is a collection of stocks that are sold as a type of package deal for investors; when you invest in a mutual fund, you receive a set of stocks that have been hand-selected by industry experts. Many mutual funds are actively managed which means that the portfolio manager selects stocks to buy and add to the fund and decides when it’s time to give underperforming assets the boot.
In exchange, the fund takes an expense ratio, which is expressed as a percentage of assets under management. Typical expense ratios for actively managed funds range from 0.70% to 1.25%.
Index funds follow a different strategy than mutual funds. Instead of employing a portfolio manager to select stocks that he or she believes will perform well, index funds buy all shares that make up a particular “index,” or a select market segmentation. There are indexes for almost every industry, but the most common index for funds to track is the Standard & Poor’s 500 index (S&P 500). This fund is comprised of the top 500 largest corporations in the United States and is generally considered to be a health indicator for the market as a whole. Index funds try to mimic the performance of an index; you can see a graph comparing the movement of the Vanguard S&P 500 Index Fund and the S&P 500 index below.
Because index funds don’t need to employ managers to select stocks, research analysts or projectionists, expense ratios for index funds are typically much lower—the average expense ratio for a Vanguard index fund ranges from 0.15% to a shockingly low 0.04% for Admiral class shares. Because they are much more diverse than industry-specific ETFs or select mutual funds, total market index funds are considered to be a safer choice for long-term holdings.
Exchange Traded Funds (ETFs)
Exchange-traded funds (ETFs) are a subset of index funds that are traded like stocks instead of traditional mutual funds. When you purchase a mutual fund, you don’t actually “buy” at the price listed—instead, portfolio managers wait until the end of the day and buy your funds at the closing price.
ETFs, on the other hand, can be bought and sold throughout the day, and you’ll need to pay commissions on these purchases. However, unlike most mutual funds, ETFs do not have a minimum investment—you can invest for as low as the price of a single share. This can make ETFs a better choice for investors who want to get started saving for retirement but who are not able to meet higher minimum investment amounts.
The Best Vanguard Mutual Funds for This Year
Based on historical performance, expense ratios, and asset size, we chose the best Vanguard mutual funds for this year.
1. Vanguard 500 Index Fund (VFINX)
It’s impossible to create a list of Vanguard mutual funds without mentioning the company’s flagship offering, the Vanguard 500 Index Fund. The Vanguard 500 tracks the S&P 500 and at the time of this writing, manages over $841 billion in assets. The fund’s largest holdings are in names you’ll probably recognize, including the Apple Corporation, Microsoft and Alphabet (Google’s parent company).
The fund’s high diversification is its biggest strength, making it an excellent selection for core long-term holding. Though the Vanguard 500 Investor’s Share class is currently closed to new investors, buyers can still purchase shares of Vanguard’s lower-fee Admiral index class with a minimum investment of $3,000. An easy way for investors to dip their toes into the U.S. equity market, the Vanguard 500 Admiral class is inexpensive, with an expense ratio of just 0.04%.
2. Vanguard Growth Index Fund Admiral Shares (VIGAX)
The Vanguard Growth Index Fund Admiral Shares invests in high-growth companies that are poised to increase in value more quickly than the general market. The fund is riskier than the 500 Index, but the company also employs a buy and hold strategy to prevent the volatility that goes with high turnover.
The Vanguard Growth Index currently holds over $148 billion spread over 266 stock selections, and some of the fund’s largest holdings are in Apple, Facebook, and Visa. Expenses are low at just 0.05%, and investors can get started with a $3,000 minimum investment.
3. Vanguard Total Bond Market ETF (BND)
Smart investors know that a portfolio composed entirely of stocks is exceptionally risky. Incorporating bonds alongside a diversified stock collection can help you protect your savings in the event of a market crash. The Vanguard Total Bond Market ETF provides broad exposure to the U.S. bond market with investment grade and government-backed bonds. The ETF has no minimum investment amount and a low expense ratio of 0.05%.
The percentage of bonds that you should have in your portfolio depends largely upon the number of years you have left until retirement. Bonds are less risky than stocks but return less money over time. As a general rule, the percentage of stocks in your portfolio should be equal to 110 minus your age. For example, a 20-year-old who still has a ways to go before he or she retires should put 90% of his or her money into stocks with the potential for higher returns, while a 60-year-old who needs to protect his or her assets should have a portfolio made up of equal amounts of stocks and bonds. To learn more about the differences between stocks and bonds, learn about these two asset types.
4. Vanguard Real Estate Index Fund (VGSIX)
Real estate investment trusts (REITs) are a special classification of a company that owns, invests, and maintains residential and commercial property. By law, REITs must pay out at least 90% of their taxable income to investors. This means that you can generally expect to see higher rates of returns when you invest in REITs when compared to other industries.
The Vanguard Real Estate Index Fund solely invests in REITs, though the specializations of these REITs range from the hospitality industry to residential real estate. This provides a small amount of diversification, but the fund’s scope is still so narrow that it is considered to be a high-risk investment. Still, the Vanguard Real Estate Index Fund has an exceptionally low expense ratio at 0.26% and makes an excellent and profitable addition to most portfolio holders who still have a few more years until retirement. You can get started investing in this fund with a minimum of $3,000.
5. Vanguard Total International Stock Index Fund (VGTSX)
A foreign large blend fund, the Vanguard Total International Stock Index Fund offers investors a low-cost way to invest in emerging markets and developed international economies alike. Some of the fund’s largest holdings are in Royal Dutch Shell, Nestle, and Samsung Electronics. The fund currently holds over $53.1 billion in assets and a relatively low expense ratio of 0.170%.
Because the fund invests heavily in new and developing economies, it is considered to be one of Vanguard’s most volatile, risky mutual funds. The Vanguard Total International Stock Index Fund should make up only a small percentage of your total portfolio.
6. Vanguard International Explorer Fund (VINEX)
With a foreign small mid-growth blend of investments totaling 2.8 billion with an expense ratio of 0.39% and 1% yield. Featuring 530 foreign companies from ASM International NV to Nippon Shinyaku, the fund gives you exposure to international companies so that you’re not investing directly, especially because many of these stocks are not accessible to retail investors.
With a seemingly endless series of funds to choose from, low fees and a simple sign-up process, Vanguard is an excellent choice for investors who are ready to get on the road to saving for retirement. Before you open a brokerage account and place your first buy order, make sure to check out our comprehensive brokerage reviews as well as our simple step-by-step guide to buying your first index fund.
Frequently Asked Questions
Are Vanguard mutual funds good for beginners?
Vanguard offers some of the best mutual funds for beginners. Additionally, advanced traders like to use vanguards mutual funds as well.
Who is the largest provider of mutual funds?
Vanguard is the largest provider of mutual funds.
What are the best Vanguard mutual funds?
You can find a list of the best Vanguard mutual funds on the list above.