Many new investors turn to Vanguard funds to get them started. That's because 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 available. 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
Most beginning investors don't start their first portfolio off with a variety of mutual funds. They either need to keep things simple or don't have the cash to meet the required minimum investment.
One mutual fund is not always enough to be diversified, and it's not only new investors who should keep that in mind.
These three balanced funds from Vanguard are good options if you want to start by investing in only one fund:
- Vanguard Wellesley Income Investor Shares (VWINX): This fund has a balance of roughly one-third stocks and two-thirds bonds, which makes for a fairly low-risk way to get started. Keep in mind that lower risk usually means lower average returns, compared to stock funds, because stock funds carry higher market risks. Still, 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 roughly 60% stocks and 40% bonds and short-term reserves, which makes for a medium-risk stock fund that is good for those with medium risk tolerance and long-term investment objectives. This fund only requires a $1,000 minimum initial investment.
- Vanguard Target Retirement 2050 (VFIFX): Vanguard has a few different target retirement funds to choose from. VFIFX can serve as a good example. These types of funds, also called "target-date retirement funds," invest in a way that fits the length of time. The longer the time until the target year, the higher the number of stocks in the fund. As the target year gets closer, the allocation will slowly shift to bonds. VFIFX is for people who are planning to retire around the year 2050. It has a minimum initial investment of $1,000.
Passive Investing With Vanguard Index Funds
Index mutual funds match or track the components of a market index, so they often combine broad market exposure with low portfolio turnover and expenses. Vanguard has dozens of index funds. Here, we highlight some good ones for new investors. All of those listed below have a $3,000 minimum initial investment.
- Vanguard Balanced Index (VBIAX): Like the Vanguard Star fund, this fund has a moderate allocation of roughly 60% stocks and 40% bonds, making it a medium-risk stock fund. It's good for those 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 was the first index fund for individual investors, and it tracks the Standard & Poor's 500 Index (S&P 500). It's one of the best ways to gain 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% exposure to stocks could mean more risk if you don't own other funds. 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 exposure to the entire U.S. stock market at a low cost. It is like Vanguard 500 Index; however, 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 like VTSAX, but 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 U.S. If you're ready to diversify your portfolio by adding foreign stock, 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. This can add more diversity and potential for higher returns. You might take a look at a small-cap stock fund and maybe a few sector funds.
Here are two Vanguard funds that could meet those needs. Each of them has a $3,000 minimum initial investment.
- Vanguard Explorer Investor Shares (VEXPX): This fund invests in more than 600 small-cap stocks, which are seen as more aggressive than large-cap stocks. But this 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 health care 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. But keep in mind that investing in just one sector is generally a bigger risk than investing in a broadly diversified stock index fund.
Vanguard funds are some of the best mutual funds for beginners, because of their wide variety of no-load funds with low expense ratios. But even advanced investors and other professionals use Vanguard funds.
Once you become more experienced, you may be able to combine several of these Vanguard funds into one portfolio.
The Balance does not provide tax, investment, or financial services or 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.