10 Best Vanguard Funds for Beginners
Vanguard Mutual Funds Have Plenty of Options for New Investors
The best Vanguard funds can be smart choices for beginning investors. Although investing with mutual funds can be quite simple, the only challenging aspect of investing with Vanguard funds is that there are so many outstanding investments to choose from, it can be a daunting task trying to figure out which fund or funds are best for you!
Fortunately we've put together a list of Vanguard funds that can work well for beginning investors but also for most any experience level.
You may also have some questions: Can I invest in just one mutual fund? Which Vanguard funds are best for aggressive investors? Which Vanguard index funds are best for beginners?
With these questions (and more) in mind, we've put together 10 of the best Vanguard funds for nearly any investment scenario:
Best Vanguard Funds for Beginners: Investing in Just One Fund
Many beginning investors don't star 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 (most of the Vanguard funds featured here require $3,000 to make the first purchase. After that, the minimum additional investments are $100 or less).
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 put all of your eggs into one basket:
- Vanguard Wellesley Income (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 purchase requirement.
- Vanguard Star Fund (VGSTX): This fund invests in a moderate allocation of roughly two-thirds stocks and one-third 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. Another highlight of this fund is that it requires only a $1,000 minimum initial purchase to get into it.
- Vanguard Target Retirement 2050 (VFIFX): Vanguard has several different target retirement funds to choose from but this one can serve as a good example. If you are around 30 years old and planned to retire around the age of 65, you'd have until around the year 2050 to invest for retirement. Therefore you could invest all of your money in a target retirement 2050 fund and not use any other funds. Why? Because target retirement funds invest in a way that is appropriate for the time period invested. In different words, the more years until the target retirement year, the higher the allocation to stocks and when the target year gets closer, the allocation will slowly shift more conservatively to bonds. Fortunately, this fund has only a $1,000 minimum initial purchase.
Best Vanguard Funds for Beginners: Index Funds
Vanguard has dozens of index funds to choose from so narrowing down to just a few can be a challenge.
Here we highlight five of best Vanguard index funds for beginning investors:
- Vanguard Balanced Index (VBINX): Like the Vanguard Star fund mentioned above, this fund has a moderate allocation of roughly two-thirds stocks and one-third 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. VBINX has a $3,000 minimum initial purchase.
- Vanguard 500 Index (VFINX): This is the first ever index fund and it's one of the cheapest, most efficient ways of gaining exposure to a large segment of the US stock market in just one mutual fund. However, unlike the balanced funds already mentioned in this article, VFINX allocates 100% of the fund portfolio to stocks. Although investing in 500 or so of the the largest companies in the United States provides diversification, the 100% exposure to stocks makes this fund higher on the risk level, when investors don't own other funds to balance the risk. Therefore, VFINX is an outstanding fund to use as the core of a portfolio, which is to say that you plan on adding other funds to this one in your personal investment portfolio. VFINX has a $3,000 minimum initial purchase.
- Vanguard Total Stock Market Index (VTSMX): This fund is the biggest mutual fund in the world for one primary reasons: It offers investors exposure to the entire U.S. stock market at a low cost. This fund is like Vanguard 500 Index but instead of getting exposure to about 500 of the largest US stocks, you get exposure to over 3,000 stocks, which includes small- and mid-cap stocks. VTSMX has a $3,000 minimum initial purchase.
- Vanguard Total Bond Market Index (VBMFX): This fund is similar to VTSMX except instead of owning the entire US stock market in one mutual fund, with VBMFX you get the entire US 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, VBMFX is the fund for you. VBMFX has a $3,000 minimum initial purchase.
- Vanguard Total International Stock Market Index (VGTSX): By now you're catching on to the "total market" idea. This fund offers coverage of stocks around the entire world, with exception of the United States. So when you're ready to diversify your portfolio by adding foreign stock exposure, you can do it with VGTSX. This fund also has a $3,000 minimum initial purchase.
Best Vanguard Funds for Beginners: Small-Cap Stock and Sector Funds
Once you've built your portfolio around the basics of large-cap US 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 three that will meet those needs:
- Vanguard Explorer (VEXPX): This fund invests in approximately 600 small-cap stocks, which are considered to be more aggressive than large-cap stocks. But aggressive (i.e. high relative risk) can translate into higher returns in the long run and exposure to hundreds of different stocks can reduce risk compared to more concentrated small-cap stock funds. This fund requires a $3,000 minimum to invest.
- Vanguard Health Care (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 invest in one industrial sector can be risky. Therefore be sure to allocate no more than around 5% of your portfolio in any one sector. This fund requires a $3,000 minimum to invest.
- Vanguard Consumer Staples (VCSAX): This fund invests completely in the consumer staples sector. Like healthcare, consumer staples or consumer non-cyclical stocks are considered defensive stocks because they can perform better than other stocks during major market corrections. For example, consumers still buy the staples, such as food and medicine, during economic recessions. Therefore consumer stocks can avoid the biggest declines during a bear market recession. This fund requires a $10,000 minimum to invest.
Once you transform from a beginning investor to an experienced one, you may be able to use several of the above Vanguard funds simultaneously in your portfolio. To see how to do this, be sure to check out my article, How to Build a Portfolio of Mutual Funds.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.