10 Best Vanguard Funds for Beginning Investors
Vanguard Funds for Any Investor
Many new investors turn to Vanguard funds to get them started since Vanguard is one of the largest investment companies in the world. Vanguard makes it easy to invest with many high-quality, low-cost, no-load mutual funds to buy. Since there are so many funds to choose from, we make it easy with a list of top notch Vanguard funds.
Investing in Just One Fund With Vanguard
Many beginning investors don't start their first portfolio with several mutual funds. This is because they either need to keep things simple or they don't have the cash to meet the minimum initial investment requirement. What all investors, not just beginners, need to keep in mind is that one mutual fund is not always sufficient enough to be diversified.
But these three balanced funds from Vanguard are diversified enough to consider if you only want to get started investing in one fund:
- Vanguard Wellesley Income Investor Shares (VWINX): This fund has a conservative balance of roughly one-third stocks and two-thirds bonds. This makes for a relatively low-risk way to get started investing. Keep in mind that lower risk usually means lower average returns compared to stock funds, which carry higher market risks. With that said, VWINX has been a top performer compared to other conservative allocation funds. VWINX has a $3,000 minimum initial investment requirement.
- Vanguard Star Fund (VGSTX): This fund invests in a moderate allocation of roughly 60 percent stocks and 40 percent bonds and short-term reserves. This makes for a medium-risk stock fund that is appropriate for most beginning investors with medium risk tolerance and long-term investment objectives. Another highlight of this fund is that it requires only a $1,000 minimum initial investment.
- Vanguard Target Retirement 2050 (VFIFX): Vanguard has several different target retirement funds to choose from but this one can serve as a good example. Target retirement funds, also called target date retirement funds, invest in a way that is appropriate for the time period invested. The more years until the target retirement year, the higher the fund's stock allocation. As the target year gets closer, the allocation will slowly shift more conservatively to bonds. This particular fund is for people planning to retire around the year 2050, and it has a minimum initial investment of $1,000.
Passive Investing With Vanguard Index Funds
Index mutual funds are created to match or track the components of a market index, and because of this, they often combine broad market exposure with low portfolio turnover and expenses. Vanguard has dozens of index funds, but here, we highlight some appropriate ones for beginning investors, all which have a $3,000 minimum initial investment.
- Vanguard Balanced Index (VBIAX): Like the Vanguard Star fund mentioned above, this fund has a moderate allocation of roughly 60 percent stocks and 40 percent bonds. This makes for a medium-risk stock fund that is appropriate for most beginning investors with medium risk tolerance and long-term investment objectives. And because it blends stock and bond indexes, it's like having two Vanguard index funds in one.
- Vanguard 500 Index (VFIAX): This is the first-ever index fund for individual investors, and it tracks the Standard & Poor's 500 Index (S&P 500). It's one of the cheapest, most efficient ways of gaining exposure to a large segment of the U.S. stock market in just one mutual fund. Although investing in 500 of the largest companies in the U.S. provides diversification, the fund's 100-percent exposure to stocks could mean more risk if investors don't own other funds. Therefore, VFIAX can be an outstanding fund to use as the core of a portfolio that contains other funds.
- Vanguard Total Stock Market Index Admiral Shares (VTSAX): This fund offers investors exposure to the entire U.S. stock market at a low cost. It is like Vanguard 500 Index but instead of getting exposure to about 500 of the largest U.S. stocks, you get exposure to more than 3,000 stocks for companies of different sizes.
- Vanguard Total Bond Market Index Admiral Shares (VBTLX): This fund is similar to VTSAX except instead of investing in the entire U.S. stock market in one mutual fund, you get the entire U.S. bond market in one fund. So when you're ready to expand your portfolio and balance the risk with a low-cost, diversified bond index fund, VBTLX could be a good choice.
- Vanguard Total International Stock Market Index Admiral Shares (VTIAX): By now you're catching on to the "total market" idea. This fund offers coverage of stocks around the entire world outside of the United States. So when you're ready to diversify your portfolio by adding foreign stock exposure, you can do it with VTIAX.
Vanguard Small-Cap Stock and Sector Funds
Once you've built your portfolio around the basics of large-cap U.S. stocks, international stocks, and bonds, you might want to add a more aggressive fund, such as a small-cap stock fund, and possibly a few sector funds for more diversity and potential for higher returns. Here are two Vanguard funds that could meet those needs. Each of them have a $3,000 minimum initial investment.
- Vanguard Explorer Investor Shares (VEXPX): This fund invests in more than 600 small-cap stocks, which are considered to be more aggressive than large-cap stocks. But aggressive, or high relative risk, can translate into higher returns in the long run. Exposure to hundreds of different stocks can reduce risk compared to more concentrated small-cap stock funds.
- Vanguard Health Care Investor Shares (VGHCX): This fund invests completely in the healthcare sector, which includes pharmaceutical firms, medical supply companies, and research firms. Thanks to advances in technology and an aging population, VGHCX has been a top-performing fund for more than 25 years. However, keep in mind that investing in one industrial sector is generally riskier than investing in a broadly diversified stock index fund.
Vanguard funds are arguably the best mutual funds for beginners because of their wide variety of no-load funds with low expense ratios. However, advanced investors and professional money managers also use Vanguard funds. Once you transform from a beginning investor to an experienced one, you may be able to combine several of these Vanguard funds into one diversified portfolio.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.