6 Best Vanguard Funds to Buy and Hold

Consider these Vanguard funds for the long haul.

Vanguard, a retirement provider that offers low-cost mutual funds and exchange-traded funds, has many diversified equity and bond options.

“Mutual funds and ETF funds allow individual investors to gain broad market access with a minimal investment,” says Greg McBride, chief financial analyst at Bankrate, a financial data company. “Even with a modest portfolio, individual investors can have their money spread across hundreds or even thousands of individual securities within this one investment, at very little cost, and at a much reduced risk level compared to acquiring individual stocks or bonds.”

Here are six Vanguard funds and ETFs to consider adding to a portfolio.

Vanguard Total Stock Market ETF (ticker: VTI)

The fund tracks the performance of the CRSP U.S. Total Market Index and comprises 100% of the investable U.S. stock market. The expense ratio is miniscule at 0.03%, so if you invested $10,000, you would only shell out $3 in fees. Since it is an ETF, there is no minimum investment required.

Mutual funds and ETFs both are efficient ways for investors to diversify and are less risky than investing in individual stocks and bonds because of diversification, says Stuart Michelson, a finance professor at Stetson University.

“When reviewing mutual funds or ETFs, an investor should consider the expense ratio because funds with higher expense ratios directly impact returns, causing lower net returns,” he says.

Vanguard S&P 500 ETF (VOO)

The S&P 500 ETF consists of the top 500 stocks of large companies and provides diversification with a low expense ratio of 0.03%. The five-year return is 17.6%. Investing on a regular basis will compound your returns to ensure a well-funded retirement, Michelson says.

An individual who invests $5,000 in an investment compounding at an 8% return should have an estimated $108,000 in 40 years, he says. By investing $6,000 per year at an 8% return, the account will be valued at $1.54 million in 40 years.

“In general, index funds tend to have the lowest expense ratios,” he says.

Vanguard Russell 2000 ETF (VTWO)

Instead of only allocating money into large-cap stocks, investors should diversify their portfolios. Small-cap stocks outperformed both large-caps and mid-caps in 2020. The Russell 2000, a small-cap index, generated a 20% return in 2020 while the S&P 500 produced a 16.3% return and the S&P MidCap 400 generated a 13.7% return. The Vanguard Russell 2000 ETF offers investors small-cap exposure while charging an expense ratio of 0.1%.

“Diversification creates lower risk when investing in mutual funds and ETFs than investing in individual securities,” Michelson says.

Vanguard Mid-Cap ETF (VO)

The Vanguard Mid-Cap ETF gives investors broad exposure to mid-cap stocks. The three-year return is 16.5% with a low expense ratio of 0.04%.

Another advantage of investing regularly is that investors will benefit from averaging their investment returns through good market years and down market years, Michelson says. “Continuing to invest during down market years allows investors to purchase shares at a lower price, which will contribute to additional compounding through the years,” he says.

A savings of 1% in fees directly benefits your total return by 1% a year as well. This savings in fees can save an investor $250,000 over the life of a 40-year investment, Michelson says.

Vanguard Balanced Index Fund (VBIAX)

The Vanguard Balanced Index Fund provides moderate allocation with 60% invested in stocks and 40% in bonds. The diversified fund provides growth and income while passive investing at a low expense ratio of 0.07%.

Even just investing in a single mutual fund or ETF will provide access to an entire asset class while lowering the amount of risk in a portfolio, McBride says.

Vanguard Total Bond Market ETF (BND)

The returns of bonds can be less volatile than those for the stock market, which is beneficial for people seeking income and less risk. The fund tracks the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index and has a 10-year trailing return of 3.8% with an expense ratio of 0.035%.

Whether you are saving your money in a 401(k) plan or individual retirement account, both retirement options provide compounding and tax-sheltered savings, Michelson says. A combination of several index funds that provide low expense ratios will help build your nest egg.

Six buy-and-hold funds positioned for the long term:

— Vanguard Total Stock Market ETF (VTI)

— Vanguard S&P 500 ETF (VOO)

— Vanguard Russell 2000 ETF (VTWO)

— Vanguard Mid-Cap ETF (VO)

— Vanguard Balanced Index Fund (VBIAX)

— Vanguard Total Bond Market ETF (BND)


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