The 6 Best Vanguard Funds to Buy Now

vanguard fund

Vanguard funds are well known for its low-cost and broad diversity, in this post, I will list the best Vanguard funds you should buy and hold. Vanguard offers a variety of index funds and exchange-traded funds (ETF).

Why Vanguard Funds?

Vanguard offers 75 ETFs and 160 mutual funds to choose from. Which Vanguard funds should you buy?

You should buy broadly diversified low cost index funds.

Index funds are a form of mutual funds where it holds a basket of funds and usually seeks to track an index such as the S&P 500 Index.

Index funds provide broad diversification. For example, the S&P 500 index fund holds around 507 stocks in its portfolio and the total stock market fund holds over 3, 500 stocks.

Index funds can be the narrow focus as well as focusing on high-dividend stock funds or sector funds.

Index funds are categorized as a passively managed fund although each fund still has a fund manager (s).

Compared to actively managed funds, passively managed funds charges low fees. Expense ratios can be as low as 0.04%.

At Vanguard, index funds may be purchased without a commission.

However, index funds such as VTSAX has a minimum investment of $3,000.

Index funds can be incorporated into your automatic investment plan.

What is ETFs?

Exchange-traded-funds or ETFs are very similar to index funds. There are minor differences between index funds and ETFs.

ETFs’ investment requirement is significantly lower. You can buy an ETF for the price of 1 share also known as the ETF’s market price. These prices range from $50 to a few hundred dollars per share.

ETFs provide real-time pricing and provide for hands-on control over the prices you trade at.

On the other hand, index funds will only have one price per day and the price isn’t calculated until after the end of the trading day.

ETFs can’t be purchased through automatic investments or withdrawals.

Why fees matter?

Fees matter because high fees can eat into your returns over the lifetime of your investment.

According to Investopedia, a good expense ratio is between 0.5% to 0.75% for actively managed portfolios. Anything greater than 1.5% is considered high.

The average expense ratios for active mutual funds are from 0.5% to 1.0%.

On the other hand, passive index funds such as index funds and ETFs have an average rate of 0.2%.

According to Listen Money Matter, a 1% fee over the span of over 28 years would have decreased an individual’s earnings by 24%.

For demonstration purposes. Let’s look at the below chart with the following variables.

  • $100,000 investment over 30 years
  • 5% investment return
  • Different fees schedule
FeesEarningsFees Assessed
0.5%$371, 853$60,341
1.0% $319,694$112,500
Source: Listen Money Matter

As you can see, fees have a significant impact on your investment returns over time even if 1% doesn’t seem like much.

Now let’s get into my list of the 6 best Vanguard funds to buy and hold today.

6 Best Vanguard Funds

Vanguard Total Stock Market (VTSAX)

Vanguard | MorningStar | Yahoo Finance | Fee: 0.04% | 14,93% 10-year return

VTSAX is one of the best Vanguard index funds to consider in your portfolio to gain exposure to the entire U.S. stock market.

VTSAX tracks the CRSP US Total Market index as its benchmark. The index tracks small-, mid-, and large-cap stocks, as well as microcap stocks that are traded on the New York Stock Exchange and Nasdaq.

22.6% of the assets are in the largest 10 companies such as Microsoft, Apple, and Amazon.

Approximately 25% in the technology sector, 17% in financials, 15% in healthcare and 14% in consumer services.

The CRSP US Total Market Index accounts for 99.5% of all common stocks traded on the NYSE and Nasdaq.

The positives for this fund is the low fee of 0.04% that’s equivalent to $4 per $10,000 invested annually. Broad diversification that captures the entire U.S. equity market to minimize losses coupled with broad diversification.

VTSAX’s ETF equivalent is VTI

There are a few differences for VTSAX vs. VTI. You can find more about VTI with Yahoo Finance’s: A Deep Look at the Vanguard Total Stock Market ETF (VTI) article.

Lastly, both VTSAX and VTI have holdings that are multinational firms so both have a substantial indirect international exposure.

VTI has an expense ratio of 0.03% lower than that of 0.04% offered by VTSAX.

Other similar funds offered: VTSMX (investor shares), this fund is no longer accepting new investors. VTSMX will be automatically be converted to VTSAX whenever the account reaches the investment threshold of $10,000.

VITSX: Vanguard Total Stock Market Index Fund Institutional-only available for institutional investors. VITSX is offered through 401k or HSA accounts.

Vanguard Institutional Index Funds (VIIIX)

Vanguard | MorningStar | Yahoo Finance | Fee: 0.02% | 15.16% 10-year return

Historically, VIIIX has a similar historical returns to the yield to S&P 500 and it seeks to track the S&P 500 index.

Of note, VIIIX is only available for institutional investors with a minimum investment of $100 million.

These funds are typically offered in 401k plans.

As an individual investor you can invest in the Vanguard 500 Index Fund (VFIAX) and its ETF equivalent is VOO.

The top 10 holdings represent 28.7 percent of all holdings. Top holdings includes: Apple, Microsoft, Amazon, and Alphabet.

Vanguard Total Stock International Index (VTIAX)

Vanguard | MorningStar | Yahoo Finance | Fee: 0.11% | 5.88% 5-year return

This Vanguard index fund seeks to track the FTSE All-World ex-US Index.

This Vanguard fund invests in developing and emerging market global companies.

This passively managed Vanguard fund is weighted by market cap, so larger companies represented a greater proportion of the fund.

The allocation is geographically diversified, with 41% invested in Europe, 23% in Emerging Markets, 29% in the Pacific, and the remaining firms from North America and the Middle East.

The top 10 holdings make up only 11.5% of the total fund assets. The largest holdings include Alibaba, Nestle, and Tencent Holdings. Other major companies are representatives of the auto, pharmaceutical, electronic, and oil industries.

ETF version: VEU

Expense ratio: 0.08%

Recently international markets are underperforming the U.S. but seem poised to be turning around this year.

Alternatively, you can invest in the Vanguard Total World Stock Index Fund (VTWAX).

This Vanguard fund gives you exposure to both US and international companies. This is a fairly new offering.

Some of the top holdings include Apple, Microsoft, Amazon, and Facebook. This fund when coupled with a bond index fund can complete your two-fund portfolio.

SImilar funds: Vanguard FTSE All-World ex-US Index Funds (VFWPX), offered through institutional accounts such as 401k.

Vanguard Total Bond Market (VBTLX)

Vanguard | MorningStar | Yahoo Finance | Fee: 0.05% | 3.58% 10-year return

Bonds are still an important piece of the puzzle for a complete investment portfolio.

As interest rates rise, so will bond yields.

The total bond market fund is an intermediate bond fund. Its objective is to track a broad, market-weighted bond index.

Bloomberg Barclays U.S. Aggregate Float Adjusted Index which measures the performance of public, investment-grade bonds and fixed-income securities

 Included in the fund are taxable investment-grade U.S. bonds. With 9,568 bonds and an average duration of 6.4 years, the current ranges from 1.4% to 2.5%.

The fund is heavily weighted to U.S. Government bonds, with 61% in this asset class. The next-highest weighting of 19% is in Baa rated bonds. And 12.6% of the fund is invested in A bonds with a small percent allocated to Aaa and Aa rated bonds.

But compared with BND, this fund has a much lower share price, which could make it an attractive choice, if you’re looking to take advantage of a bargain, buys for Vanguard bond funds.

ETF version: BND

Expense ration 0.035%

Similar funds: VBMPX-Vanguard Total Bond Market Index Fund Institutional, VBMPX-Vanguard Total Bond Market Index Fund Institutional

Vanguard Target Retirement 2055 Fund (VFFVX)

Vanguard | MorningStar | Yahoo Finance | Fee: 0.15% | 10.88% 10-year return

When you wanted to create your own fund you can start with one fund, two-fund or three-fund portfolios.

For funds of funds, a Vanguard Target Retirement is one of my favorites.

This fund’s assets are diversified in domestic and international stocks as well as bonds.

Ranking by percentage
1Vanguard Total Stock Market Index Fund Investor Shares54.70%
2Vanguard Total International Stock Index Fund Investor Shares36.00%
3Vanguard Total Bond Market II Index Fund Investor Shares**6.30%
4Vanguard Total International Bond Index Fund Investor Shares3.00%
Source: Vanguard

The fund will shift towards more bond holdings when the year 2055 approaches.

Target date funds are perfect for an investor who wanted a fund of funds. The number after the fund indicate the year the “retirement” is expected.

Depends on your risk tolerance you can choose to buy different funds between 2053 and 2057 respectively.

Vanguard Extended Market Index Fund Institutional (VEMPX)

Vanguard | MorningStar | Yahoo Finance | Fee: 0.04% | 10.86% 5-year return

This fund invests in U.S. mid- and small-cap stocks. The fund invests in about 3,000 stocks and represented about one-fourth of the market-cap of the U.S. stock market.

This fund is used to complement the Vanguard 500 Index Fund. Together they will have holdings similar to that of VTSAX or a similar fund.

This fund is available to institutional investors only.

Three-fund Portfolio

The rationale for using a three-fund portfolio is very straight forward.

  • Simple portfolio setup
  • Provide broad diversification to minimize losses in a particular sector with exposure to U.S. and global markets’ main asset classes
  • Low-fees will boost return of investment

VTSAX is a great companion to any portfolio. You can have VTSAX as the sole holding in your portfolio or add VTSAX to VBTLX for a two-fund portfolio.

For a three-fund portfolio: A combination of VTSAX, VTIAX and VBTLX is all that you need.

Final Thoughts on Vanguard Funds

These funds are ideal for long-term investors. I love the three-fund portfolio but I also see the benefits of having a one fund portfolio and a two-fund portfolio.

The most important thing to remember is to come up with an asset allocation plan and stick to it! As you move closer to retirment then increase your bond holdings accordingly.

Re-balance yearly, every 3 months or 6 months. Pick a date like your birthday.

I am a firm believer in a buy and hold strategy. The great Jack Bogle has instilled in me the great principles of:

  1. It’s not timing the market but how long you’ve invested in the market.
  2. Stay the course and keep out all the noise.
  3. Don’t buy the needle in the haystack but own the whole thing!