Picking low-fee funds.
Vanguard funds are a popular choice among investors who favor an indexing strategy. With index investing, the objective is to match the performance of a stock market benchmark, such as the S&P 500 or the Nasdaq. This approach may appeal to the buy-and-hold investor who's seeking the best funds to own for retirement. Vanguard's fund selection offers an advantage over competitor funds, in that they boast some of the lowest expense ratios around. Lower costs mean investors can hold on to more of their returns over time. Here are seven of the best Vanguard mutual funds for a buy-and-hold strategy.
Vanguard LifeStrategy Growth Fund (ticker: VASGX)
Vanguard's collection of LifeStrategy funds aim to simplify asset allocation by allowing investors to choose a target mix of stocks and bonds. VASGX is designed for the buy-and-hold investor who's looking for long-term growth; the fund features an 80/20 split between equities and bonds. Built-in rebalancing makes this fund an interesting choice for buy-and-hold investing, says Jason Ball, a certified financial planner at Ball Comprehensive Planning. Similar to target-date Vanguard funds, the LifeStrategy Growth Fund is an index fund composed of other index funds. It offers a five-year average return of 7.23% and an expense ratio of 0.14%. Year-to-date, VASGX has delivered a 23.13% return.
Vanguard Total Stock Market (VITSX)
VITSX is one of the best Vanguard mutual funds for buy-and-hold investors who want broad exposure to the stock market as a whole. Tyler Zanini, CEO at Retire, says the Vanguard Total Market Index Fund's strong point is that it contains large-, mid- and small-cap companies. "This means the investor doesn't need to own each one of these categories." The top 10 holdings include some of the biggest names in the market, including Microsoft Corp. (MSFT), Apple (AAPL) and Amazon.com (AMZN). The five-year return is 10.96% while the year-to-date return is 30.81%, making it one of the best-performing Vanguard funds. It's also one of the cheapest, with an expense ratio of 0.03%.
Vanguard S&P 500 Index Fund Admiral Shares (VFIAX)
VFIAX is another mutual fund that offers wide-scale stock market exposure and it's one of the best Vanguard funds for passive buy-and-hold investing. Year to date, the fund has returned 31.46% and the five-year average return is 11.44%. The Vanguard S&P 500 Index Fund Admiral Shares tracks the performance of the S&P 500, which may suit buy-and-hold investors who are interested in a large-cap focus. Phil Cooper, founder of Kingdom Purposes Investment Planning, says index funds are good for investors who want to diversify while remaining largely hands-off when it comes to managing asset allocation. VFIAX delivers on both counts while keeping costs to investors exceptionally low, with an expense ratio of 0.04%.
Vanguard Real Estate ETF (VNQ)
Real estate may be attractive to buy-and-hold investors based on its low correlation to the stock market and its ability to act as a hedge against inflation. VNQ tracks the performance of the MSCI US Investable Market Real Estate 25/50 Index, which measures the performance of publicly traded real estate investment trusts and other real estate investments. "VNQ owns a broad range of U.S. commercial real estate including offices, apartments, retail and industrial," says Charles Self, chief investment officer at iSectors. "Investors should own some real estate since it provides diversification from the broad stock and bond markets." The Vanguard Real Estate ETF has an expense ratio of 0.12%, making it one of the lowest-cost real estate fund options.
Vanguard Balanced Index Fund (VBIAX)
Balanced funds are what they sound like, a fund that attempts to maintain a set balance between stocks and bonds for asset allocation. VBIAX invests roughly 60% of its holdings in U.S. stocks, with the remaining 40% allocated to U.S. bond holdings. The fund relies on an index strategy, tracking the CRSP US Total Market Index and the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. Timothy Wiedman, retired associate professor of management and human resources at Doane University, says the bond component of the fund helps smooth economic bumps, which may be reassuring for near-retirees. An expense ratio of 0.07% makes it one of the best Vanguard funds for cost-conscious buy-and-hold investors. The fund has a five-year average return of 8.05% and year to date has returned 21.79%.
Vanguard Wellington Fund (VWELX)
VWELX is the oldest Vanguard mutual fund and it may be suited for buy-and-hold investing where income generation is a primary goal. The fund's assets are split at approximately 60% to 70% stocks, with the remainder invested in fixed income. Underlying holdings include a mix of dividend stocks, such as Microsoft and Verizon Communications (VZ), along with investment-grade bonds and mortgage-backed securities. Wiedman recommends the Vanguard Wellington Fund for investors who want to own an actively managed fund in addition to Vanguard index funds. A 0.25% expense ratio makes it a bit more expensive than many of Vanguard's passively managed mutual fund options but it's still well below the industry average. The fund's five-year average return is 7.79%.
Vanguard Growth Index Fund (VIGAX)
Based on the five-year average return of 12.1% and the year-to-date return of 37.23%, VIGAX could easily rate as one of the best-performing Vanguard funds. It also has one of the lowest expense ratios of any Vanguard mutual fund offering, at 0.05%. The Vanguard Growth Index Fund Admiral Shares uses the CRSP US Large Cap Growth Index as its benchmark. This index tracks the performance of U.S. large-cap growth companies. Facebook (FB), Alphabet (GOOGL, GOOG) and Visa (V) are among the top holdings. VIGAX is a nondiversified fund, meaning it has a single asset allocation focus, which is something buy-and-hold investors should keep in mind when building and managing a portfolio.
These buy-and-hold funds are well-positioned long term.
-- Vanguard LifeStrategy Growth Fund (VASGX)
-- Vanguard Total Stock Market (VITSX)
-- Vanguard S&P 500 Index Fund Admiral Shares (VFIAX)
-- Vanguard Real Estate ETF (VNQ)
-- Vanguard Balanced Index Fund (VBIAX)
-- Vanguard Wellington Fund (VWELX)
-- Vanguard Growth Index Fund (VIGAX