The Best Vanguard Funds for Retirees
Are you getting your finances ready for retirement? Some of the best Vanguard funds are great choices for retirees.
Once you retire, your investment goals are likely to shift more toward income and stability. Growth is often a lesser priority. But retirees live longer than they used to. Even if you are in your 60s when you retire, you may live another 20 or 30 years.
You'll need to invest for short- and intermediate-term income after you retire. But you'll also need long-term growth for the next few decades.
These funds can help you manage your finances, not just before retirement, but also once you are retired.
Dividends are the part of a company's profits that are paid to you when you hold stock. Dividend stocks allow you to receive income from your investments. Dividend funds let you hold many dividend stocks at once.
Once you are retired you might not want to buy shares of riskier funds. Dividend funds can be a safer choice for retired investors.
Dividends can be put back into the fund to buy more shares. But most retired investors who buy dividend mutual funds want a source of steady and reliable income from their dividends.
Here are some of the best Vanguard funds for dividends.
Vanguard Dividend Growth (VDIGX)
This fund is a great choice if you want solid payouts now that will also grow over time. It mostly focuses on U.S. large-cap value stocks. About 4.9% of the portfolio is put into foreign holdings.
The expense ratio for VDIGX is a low 0.27%. You must make an initial purchase of at least $3,000.
Vanguard Utilities Index Admiral Shares (VUIAX)
This fund focuses on stocks in the utility sector, which tend to have high dividends. It mostly holds large-cap stocks of U.S. utility companies, such as Duke Energy Corporation (DUK) and Southern Company (SO).
The expense ratio for VUIAX is a low 0.10%. However, it is only offered in Vanguard's "Admiral" share class, which has a minimum initial purchase of $100,000.
If you can't afford to invest in VUIAX, you can try Vanguard's utility ETF (exchange-traded fund). Its symbol is VPU, and it has no minimum to invest.
Keep in mind that dividend mutual funds often pay high yields. But these funds also come with the risk that your investment may lose value instead.
Conservative Allocation Funds
In retirement, you may want to use conservative allocation funds. These hold a low-risk blend of stocks, bonds, and cash in just one fund. You won't see big declines during bear markets, and you can get a diverse allocation in just one fund.
Conservative funds are a good fit for retirement investing. The goal is to keep market risk low while still getting returns that match or slightly outpace inflation, which is around 3%.
Here are some of the best conservative funds from Vanguard.
Vanguard LifeStrategy Conservative Growth (VSCGX)
This fund holds about 40% stocks and 60% bonds. This creates slow but steady growth over the long term, which makes for a good conservative fund.
VSCGX has been able to average over 7% returns over the long term. The expense ratio is cheap at 0.12%. The minimum initial investment is $3,000.
Vanguard Wellesley Income (VWINX)
This fund is solidly conservative. It holds 35% to 40% stocks, 60% bonds, and the remainder in cash.
Returns from Wellesley beat other conservative allocation funds for three-, five- and ten-year returns. It also has a very cheap expense ratio of 0.23%. The minimum initial investment is $3,000.
Vanguard Wellington (VWELX)
VWELX is not quite as conservative as VSCGX and VWINX. It holds around 65% stocks and 35% bonds. This can be a good fit if you are willing to take a bit more risk for higher long-term returns.
Wellington is a medium-risk allocated fund, but it still beat most 100% stock allocations between 2000 and 2015. Even during those difficult years, its average return was higher than that of the S&P 500 Index.
Like other Vanguard funds, it has low expenses (0.24%). You have to invest at least $3,000 to begin.
Bond Index Funds
Low expense ratios are important in the world of bond funds. Vanguard has the best selection of low-cost bond funds.
For example, in some cases, just a 1% difference in returns can separate the best bond funds from the worst. Many of Vanguard's index bond funds are between 0.5% and 1% lower in expenses than the average bond fund.
Vanguard's passively managed funds have lower expenses than actively managed funds. This is because their operating expenses are much lower. For example, costs for research, analysis, and buying and selling holdings are much lower for passively managed funds.
An index fund manager only needs to track the fund's benchmark index. An active manager, on the other hand, is usually trying to beat the benchmark. This takes more time and money to achieve.
For bond funds, the main benchmark is the Bloomberg Barclays Aggregate Bond Index. This is a broad bond index covering most U.S. traded bonds and some foreign bonds traded in the U.S.
Index funds also have other advantages. Passive management removes the risk of the fund manager making human mistakes, such as being wrong about what interest rates will do in the near future.
Here are some of the best bond index funds at Vanguard for retired investors.
Vanguard Intermediate-Term Investment Grade (VFICX)
VFICX invests in several medium and high-quality investment-grade bonds. It has a low expense ratio of 0.2%. The minimum investment is $3,000.
The active management style doesn't always keep it ahead of the benchmark index. However, its long-term returns have averaged better than index funds like VBTLX.
Vanguard Short-Term Investment-Grade (VFSTX)
Short-term bonds often have lower yields and lower returns than intermediate- and long-term bonds. But they aren't as interest-rate sensitive.
This makes them good choices when interest rates are rising. This fund has a low expense ratio of 0.2%. The minimum initial investment is $3,000.
Bonds are rated from AAA (highest quality) to D (in default). "Investment-grade" bonds are in the middle ground from AAA down to BBB-. These funds invest in an average of medium-quality bonds. Their yields and long-term returns can be higher in the long run, compared to short-term bond funds.
The Balance does not provide tax or investment advice or financial services. 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.