3 Best Vanguard Funds for Conservative Investors

These Vangaurd Funds Can Achieve Above-Average Returns for Below-Average Risk

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Vanguard offers some of the best conservative mutual funds to buy. Getty Images

Vanguard is best known for their low-cost index funds. But some of the best Vanguard funds to buy are conservative (low market risk) funds. Investors that buy conservative allocation funds are typically looking for a combination of current income with potential for long-term growth that stays ahead of inflation.

Why Vanguard's Conservative Allocation Funds Are Appropriate

Conservative allocation mutual funds typically hold about two-thirds bonds and one-third stocks.

This balance allows for low relative risk investing with enough exposure to risk for long-term capital appreciation.

Here some of the primary reasons investors buy conservative mutual funds:

  • Use conservative funds as a core holding: 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 allocation, and several satellite holdings, which will receive smaller allocation percentages. Many investors use index funds, such as an S&P 500 Index fund, but they also use conservative funds as core holdings.
  • Use conservative funds for low-risk investing: The very nature of conservative investing is keeping market risk low and to keep volatility to a minimum while still achieving average returns that keep up with inflation (or beat it by a small margin) over time.
  • Use conservative funds for retirement income: Conservative funds often have a low-risk, diversified blend of high-quality, dividend-paying stocks and high quality bonds. This makes for a solid combination of income-producing holdings that retirees need without too much risk of losing principal during their golden years.
  • Use conservative funds for beginning investors: First-time investors may want to get an introduction to investing in a conservative allocation of stocks, bonds, and cash in just one fund. This way they won't see big declines during bear markets and they can get a diversified allocation in just one mutual fund without a large sum of money.

    3 Best Vanguard Funds for Conservative Investors

    If you are an investor looking for some of the best conservative funds, you'll want to consider one of these Vanguard funds:

    1. Vanguard LifeStrategy Conservative Growth (VSCGX): The asset allocation for this fund is approximately 40% stocks and 60% bonds. This allows for slow but steady growth over the long term, which makes for a good conservative fund. VSCGX has been able to average over 4% annualized return of the long term. The expense ratio is cheap at 0.15% and the minimum initial investment is $3,000.
    2. Vanguard Wellesley Income (VWINX): The portfolio is solidly conservative with an  allocation that ranges between 35% and 40% stocks, around 60% bonds, and the remainder in around 5% cash. As for performance, Wellesley beats at least 90% of other conservative allocation funds for 3-, 5- and 10-year returns. For one of the best conservative mutual funds you can buy, it’s hard to beat the cheap expense ratio of 0.25%. The minimum initial investment is $3,000.
    3. Vanguard Wellington (VWELX): The asset allocation for VWELX is not quite as conservative ans VSCGX and VWINX but its moderate allocation of approximate 65% stocks and 35% bonds can be suitable for conservative investors willing to take a bit more risk in exchange for higher long-term returns. Although Wellington is a medium-risk allocated fund, it still beat most 100% stock allocations in the challenging market period between the years 2000 and 2015, when the fund had an average return of 7.5%, compared to 4.5% for the S&P 500 Index. Like other Vanguard funds, you'll get a low expense ratio (0.26%) for Wellington. The minimum initial investment is $3,000.

      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.