10 Best Vanguard Funds to Hold for the Long-Term
Vanguard funds are synonymous with buy-and-hold investing because of their outstanding selection of high-quality, low-cost mutual funds and ETFs. These qualities make Vanguard funds ideal investment choices for long-term investors.
Vanguard offers around 1,800 ETFs.
Pros and Cons of Vanguard Mutual Funds
A few pros and cons exist when it comes to investing in mutual funds from Vanguard, as with any mutual fund company.
Vanguard's low-cost index funds to replicate the market (S&P 500, etc.) return
Bond funds may provide better diversification
International stock funds could provide additional diversification
To make good fund choices, you must decide if you're a long-term vs. short-term investor
Vanguard's large number of funds requires research before selection
Some funds may have minimum investment requirements
Because Vanguard has dozens of funds to choose from, you'll need to spend some time doing research to find the best Vanguard funds for your personal finance needs.
The list below can help you get started with your Vanguard fund review, as it narrows the selection of Vanguard funds to the 10 best funds to hold for the long term.
Are You a Long-Term Investor?
Before buying Vanguard funds for the long term, decide whether you're a long-term investor. If you talk with 10 different financial planners or investment advisers, you could get 10 different explanations about what "long-term" means.
Generally, investors with at least 10 years or more before they need to start withdrawing from their investment accounts fall into the long-term investor category. It also generally holds true for bond securities, like long-term bonds and long-term bond funds.
If you're saving money for a vacation next year, you're not a long-term investor, and you should look for the best funds for short-term investments.
Retired investors make a common mistake with long-term investing by thinking of themselves as "short-term investors." Although they might be making withdrawals to supplement their retirement income, they may easily have a life expectancy of more than 10 years in retirement. For example, the average life expectancy in the U.S. is about 78 years.
If you retire at 65, you still have 13 years to invest. Depending upon your sources of income and your overall financial picture, you'll need to invest at least a portion of your retirement assets in long-term investments, such as stock mutual funds.
Choosing the Right Funds for Your Needs
The best long-term investments for most investors generally consist of stock mutual funds, especially index funds.
If you have at least three years before starting withdrawals, stock mutual funds may be a good investment.
Index funds also make smart choices for long-term investing. Vanguard's index funds are among the most popular holdings for long-term investors and have attracted such a large amount of investor assets that Vanguard Investments has become the largest mutual fund company in the world.
Vanguard index funds make smart choices for long-term investing because index funds are passively managed and have lower expense ratios than actively-managed funds. Also, since the expense ratios for index funds are so low, they offer a long-term advantage for performance.
This is because most fund managers for active funds don't beat the major market indexes for periods longer than 10 years. So, rather than trying to beat the market, which is difficult to do consistently over the long run, you may as well invest in funds that match the market at a lower cost. It is the essence of index funds.
10 Best Vanguard Funds for Long-Term Investing
Now that you know that you're a long-term investor and you know which fund types work best for long-term investing, the following lists the 10 best Vanguard funds to buy and hold for the long term, in no particular order.
Vanguard's VTSAX is the largest mutual fund in the world for two primary reasons: It's a diversified stock index fund, and its expenses are extremely low. The portfolio provides exposure to the entire U.S. stock market, which includes small-, mid-, and large-cap stocks. This includes over 3,500 securities. The expenses are only 0.04%, or $4 for every $10,000 invested, and the minimum initial investment is $3,000 for Admiral Shares.
Also available as Vanguard Total Stock Market ETF (VTI), with a 0.03% expense ratio.
Another balanced fund from Vanguard, VWINX holds a conservative (low risk) allocation of approximately 40 percent stocks and 60 percent bonds. VWINX can be appropriate for long-term investors who have a relatively low tolerance for risk or retired investors looking for a combination of income and growth. Expenses for VWINX (0.23%) are extremely low for an actively-managed fund. The minimum initial investment is $3,000.
This index fund tracks the S&P 500 index, which means it holds about 500 of the largest U.S. stocks. So, VFIAX shareholders will get exposure to stocks like Apple (AAPL), Facebook (FB), Amazon (AMZN), and Alphabet (GOOG, GOOGL), the parent company of Google. VFIAX is a smart choice for investors who want to build their own portfolio that includes other stock funds, such as small-, and mid-cap funds. The expense ratio for VFIAX is 0.04%, and the minimum initial investment is $3,000.
Also available as Vanguard S&P 500 ETF (VOO), with a 0.03% expense ratio.
Although long-term investing is often associated with stocks, most investors will need to have a portion of their portfolios invested in bonds, and VBTLX is a smart choice for the same reason as most other index funds: they are well-diversified low-cost investments. The VBTLX portfolio consists of more than 9,000 U.S. government and corporate bonds. The expense ratio for VBTLX is 0.05%, and the minimum initial investment is $3,000.
Also available as an ETF: Vanguard Total Bond Market ETF (BND) with an expense ratio of 0.035%.
You may have noticed that many funds have minimums of $3,000 to start investing. However, VGSTX has a lower minimum of $1,000. It also is what's known as a fund of funds, which means it invests in other mutual funds, all in one fund option. The STAR fund invests in a diversified mix of 11 Vanguard funds, making it a solid standalone option for beginning investors or those wanting a single fund solution for investing. The expense ratio is 0.31%, but Vanguard claims that it is still 62% lower than funds with similar holdings.
To build a complete portfolio of long-term investments, most investors will include international stock funds and VTIAX is one of the best Vanguard funds to do this. VTIAX tracks an index that includes over 6,000 non-U.S. stocks and includes both developed markets (i.e., Europe and Japan), and emerging markets (i.e., China, India, and Brazil). So, for a low expense ratio of just 0.11%, shareholders can gain exposure to the entire stock market outside the U.S. The minimum initial investment is $3,000.
Investors can also pick up the index at one-share costs, as Vanguard Total International Stock ETF (VXUS), with a lower expense ratio of 0.08%.
Investors willing to take more risk for the chance of getting higher returns than the broad market indices, such as the S&P 500, can take a look at VIGAX. This index fund holds large-cap growth stocks, which have historically outperformed the S&P 500, especially for periods of 10 years or more. Expenses for VIGAX are 0.05%, and the minimum initial investment is $3,000.
Also available as Vanguard Growth ETF (VUG) with a 0.04% expense ratio.
Vanguard has a small but outstanding selection of balanced funds, which are mutual funds or ETFs that invest in a combination of stocks and bonds. VBINX has a moderate (medium risk) allocation of about 60% stocks and 40% bonds. The stock portion invests in a total stock index, and the bond portion invests in a total bond index. The expenses are 0.07%, and the minimum initial investment is $3,000.
Small- and mid-cap stocks have historically outperformed large-cap stocks in the long run, but mid-cap stocks can be the wiser choice of the three. Although mid-cap stocks generally have higher market risk than large-cap stocks, they typically have lower risk than small caps. Therefore, investors often consider mid-caps the sweet spot of investing because of their returns in relation to risk. VIMAX has a low expense ratio of 0.05%, and the minimum initial investment is $3,000.
The same blend is also available as an ETF, as Vanguard Mid-Cap ETF (VO), with a 0.04% expense ratio.
Vanguard Target Retirement Funds
There are several Vanguard Target Retirement Funds to choose from, and some investors are wise to consider this unique investment type. As the name suggests, target retirement funds have an investment strategy geared for the target retirement year specific to the fund. For example, Vanguard Target Retirement 2040 (VFORX) has an asset allocation of approximately 85% stocks and 15% bonds, which is appropriate for an investor retiring near the year 2040.
Vanguard's Target Retirement Funds are appropriate for investors that want to buy and hold one mutual fund and hold it until retirement. Some advisers and planners call these funds set-it-and-forget-it funds because the investor does not need to build a portfolio of funds or manage a 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.
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