Best Vanguard Funds for Conservative Investors

Low Risk Funds for Your Portfolio

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Vanguard is best known for their low-cost, no-load mutual funds. But some of the best Vanguard funds to buy are their conservative funds. Investors that buy conservative mutual funds or ETFs are typically looking for a combination 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 20-50% stocks and 50-80% bonds.

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

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

  • 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.
  • Conservative funds as 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 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 conservative funds can be used as core holdings for investors wanting lower risk than a fund that invests 100% of its portfolio in stocks.
  • 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.

How We Selected the Best Conservative Vanguard Funds

When selecting the best conservative funds for you, look for these qualities:

  • Conservative allocation: To be defined as conservative, the stock allocation should be 20-50% and the bond allocation should be 50-80%.
  • High quality, dividend-paying stocks: The stock allocation in the conservative fund should focus primarily 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 expenses low but it's especially important with conservative funds. This is because average long-term returns for conservative funds are lower than aggressive funds and investors should do their best to keep more money working for them, rather than too high expenses.

Vanguard funds have expenses that are lower than over 80% of other mutual funds.

3 Best Vanguard Funds for Conservative Investors

Keeping our selection criteria in mind, here are three of the best Vanguard conservative 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 0.12% 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 0.23%. The minimum initial investment is $3,000.
  3. Vanguard Target Retirement 2015 (VTXVX): If you are already in retirement, VTXVX is a smart choice for conservative investors who want a target retirement fund. These funds are managed such that the allocation grows slowly more conservative over time. The allocation for VTXVX is currently 44% stocks and 55% bonds. The expense ratio for VTXVX is low at 0.13% and the minimum initial investment is $1,000.

The Bottom Line

The best conservative funds will have a higher allocation to bonds than to stocks. Low expenses can also be an advantage with conservative investing. Investors that buy conservative funds are typically looking for income and wanting to keep market risk lower compared to funds with higher allocations to 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. 

Article Sources

  1. American Association of Individual Investors. "AAII Asset Allocation Models." Accessed April 29, 2020.

  2. Vanguard. "Vanguard Wellesley Income Investor Shares." Accessed April 29, 2020.

  3. Vanguard. "See the Difference Low Cost Funds can Make." Accessed April 29, 2020.