Vanguard is best known for their mutual funds that are low risk and low cost. Some of the best Vanguard funds to buy are their conservative funds. People who invest in conservative mutual funds or ETFs are often looking for a mix of current income, low risk, and potential for returns that can match or beat the average rate of inflation.
Why Invest in Conservative Mutual Funds?
Conservative investments have low relative risk, which means they will generally have low exposure to stocks. Conservative allocation mutual funds typically hold about 20% to 50% stocks and 50% to 80% bonds.
The stock and bond balance in conservative mutual funds allows for low relative risk investing with enough exposure to stocks for long-term capital growth.
Here some of the main reasons investors buy conservative mutual funds:
- Investing that is low risk: The very nature of conservative investing is keeping market risk and volatility low while still getting average returns that keep up with inflation, or beat it by a small margin, over time.
- Retirement income: These funds are often low risk with a blend of stocks that are high quality and pay dividends. This makes for a solid mix of holdings that produce income that retirees need without too much risk of losing their primary funds.
- Core holdings: When building a portfolio, a core and satellite structure is smart. Just as it sounds, an investor will choose one core holding, which will receive the highest amount of funds, and several smaller holdings, which will receive lower funding amounts. Many people who invest money use index funds, such as an S&P 500 Index fund, but funds that are low risk can be used as core holdings for people who want to invest their money with a lower risk than a fund that invests 100% of its portfolio in stocks.
- People just starting to invest money: These investors may want to get started by investing in funds that are low risk. This way they won't see big declines during bear markets, and they can get a varied allocation in just one mutual fund without a large sum of money.
How We Chose the Best Vanguard Funds That Are Low Risk
When choosing the best conservative funds, we looked for these aspects:
- Allocation: To be defined as conservative, the stock allocation should be 20% to 50%, and the bond allocation should be 50% to 80%.
- High quality stocks paying dividends: The stock allocation in these funds should focus mostly on large company U.S. stocks that pay dividends. This not only provides more stability than aggressive growth stocks, but also an income element that some conservative investors are looking for.
- Low expenses: It's always a good idea to keep costs low, but it means even more with conservative funds. Average returns over the long term for these funds are lower than aggressive funds, and people who invest should do their best to keep more money working for them, rather than paying high fees.
Vanguard funds have expenses that are lower than over 80% of other mutual funds.
3 Best Vanguard Funds for Conservative Investors
Keeping our criteria in mind, here are three of the best Vanguard conservative funds:
- Vanguard LifeStrategy Conservative Growth (VSCGX): The asset allocation for this fund is around 40% stocks and 60% bonds. This allows for slow but steady growth over the long term, which makes for a fund that is looked at as low risk. VSCGX has been able to average over 4% return per year over the long term. The expense ratio is cheap at 0.12%, and the minimum initial amount to get in is $3,000.
- Vanguard Wellesley Income (VWINX): The portfolio is very conservative with an allocation that ranges between 35% and 40% stocks, around 60% bonds, and the rest in around 5% cash. Wellesley performs well, beating at least 90% of other conservative funds for returns over three, five, and 10 years. For one of the best funds of this type you can buy, it’s hard to beat the cheap expense ratio of 0.23%. The lowest amount to buy in is $3,000.
- Vanguard Target Retirement 2015 (VTXVX): VTXVX is a smart choice for those who want a target retirement fund. These funds are meant to grow more conservative over time. The breakdown for VTXVX is around 44% stocks and 55% bonds. The expense ratio for VTXVX is low at 0.13%, and the lowest starting investment is $1,000.
The Bottom Line
The best funds for people who want their money to be safe will have a higher amount of funds put into bonds than into stocks. Low expenses can also be a plus with this type of investing. People who buy conservative funds are looking for income and wanting to keep market risk lower than if they were to buy funds with higher amounts of stocks.
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.