The key to investment success for beginners is not to chase after the elusive goal of market outperformance, but rather to focus on achievable and impactful investment practices and behaviors.
This means stepping away from trying to pick stocks and funds in the hopes of exceptional-but-unpredictable future outperformance. Instead, there are other concrete steps investors can undertake to positively influence investment outcomes with certainty.
These include keeping fees low, maintaining minimal turnover and ensuring your holdings are well diversified. Each of these factors plays a crucial role in the overall performance of your investments.
Low fees reduce the amount of your returns that are eaten up by costs, leaving more of your money to grow over time. Minimal turnover, or less frequent trading within the fund, leads to lower transaction costs and potential tax-efficiency. A well-diversified portfolio reduces risk by spreading investments across various assets, sectors or geographies.
Vanguard, as one of the nation's largest asset managers, excels in each of these areas. With a robust lineup of 267 mutual funds, Vanguard has established itself as a leader in providing investment options that are both accessible and effective for beginners.
The firm's unique structure as a shareholder-owned company allows it to focus on continually cutting fees, further benefiting its investors.
"Beginner investors should consider Vanguard funds for their low costs, diversification across asset classes and regions, simplicity, and robust investor education resources," says Sean August, CEO of The August Wealth Management Group. "In addition, Vanguard's reputable status and client-owned mutual structure helps instill trust and prioritizes investor interests."
Here are seven of the best Vanguard funds for beginner investors:
| Fund | Expense ratio |
| Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX) | 0.04% |
| Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) | 0.04% |
| Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) | 0.11% |
| Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) | 0.05% |
| Vanguard Target Retirement 2070 Fund (VSVNX) | 0.08% |
| Vanguard Balanced Index Fund Admiral Shares (VBIAX) | 0.07% |
| Vanguard Dividend Growth Fund (VDIGX) | 0.3% |
Vanguard 500 Index Fund Admiral Shares (VFIAX)
August recommends that beginner investors undertake a two-step process when selecting funds for their portfolio. "Firstly, assessing the fund's investment objective is crucial to ensure alignment with personal investment goals, whether it involves growth, income or a combination of both," August says. "Next, evaluate the fund's risk profile to match it with your risk tolerance, and compare expense ratios."
For younger investors looking for long-term growth and willing to take higher risk, a 100%-domestic-equity fund like VFIAX could be a viable core holding. This mutual fund tracks the S&P 500 index for a low 0.04% expense ratio and has returned 12% annualized over the trailing 10 years. It requires a $3,000 minimum investment, but it can be accessed in ETF form for around $451 per share.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
"We believe investors can benefit from the diversification of a market-weighted portfolio that provides exposure to the broader market," says Sophoan Prak, a certified financial planner at Vanguard. "For example, investors who buy VTSAX obtain broad exposure to large-, mid- and small-cap U.S. companies, providing a good representation of the broader domestic market."
The CRSP U.S. Total Market Index tracked by VTSAX is meant to serve as an all-encompassing barometer of the investable U.S. market. It includes the stocks found in the S&P 500, but also thousands of other mid- and small-cap stocks excluded by the index. Historically, VTSAX has returned similar to VFIAX, with an 11.4% 10-year annualized return. The fund also charges a 0.04% expense ratio.
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
"For even broader diversification, investors can benefit from including international stocks to their portfolio mix," Prak says. "Vanguard's research supports having approximately a 40% exposure to international stocks in order to create a portfolio that is less volatile over the long term." For broad exposure to the international market, investors can buy VTIAX.
The FTSE Global All Cap ex U.S. Index tracked by VTIAX currently spans over 8,300 stocks from both developed and emerging markets. The former includes countries like Japan, the U.K., Canada, France, Switzerland and Germany, whereas the latter encompasses countries like China, India, Mexico and Brazil. VTIAX charges a 0.11% expense ratio and requires a $3,000 minimum investment.
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
"Your investment goals, time horizon and risk tolerance should be the driver for your portfolio's overall stock and bond asset mix," Prak says. "If you're closer to retirement, consider adding some bonds to the asset mix to reduce the volatility of the portfolio." Historically, high-quality bonds have helped investors reduce volatility and drawdowns during recessions and times of market crisis.
For affordable bond exposure, Vanguard offers VBTLX, which tracks the Bloomberg U.S. Aggregate Float Adjusted Index. This mutual fund is meant to provide broad exposure to over 10,000 U.S. government Treasurys, mortgage-backed securities and investment-grade corporate bonds of various maturities. Currently, it pays a 4.3% 30-day SEC yield and charges a 0.05% expense ratio.
Vanguard Target Retirement 2070 Fund (VSVNX)
"Mutual funds offer a great way to gain broad exposure to a basket of securities," Prak says. "The average person may not have the time or expertise to analyze and build a portfolio of individual stocks and bonds to reap the diversification benefits mutual funds can provide." For even greater simplicity, beginner investors can stay totally hands-off by buying a Vanguard target-date fund like VSVNX.
Currently, this fund allocates around 90% to U.S. and international stocks, and 10% to U.S. and international bonds. However, as the years go by, VSVNX will gradually adjust its allocation to become more conservative. This entails reducing stocks and increasing bonds. Thus, as investors age and their risk tolerance and time horizon change, VSVNX will adapt accordingly. The fund charges 0.08%.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
As its name suggests, this fund takes a more balanced approach, employing a strategy of 60% in stocks and 40% in bonds for a 0.07% expense ratio.
The stock side of VBIAX tracks the CRSP U.S. Total Market Index used by VTSAX, whereas the bond side tracks the Bloomberg U.S. Aggregate Float Adjusted Index used by VBTLX. This balance has historically helped VBIAX achieve a 10-year annualized return of 7.7% while minimizing volatility and drawdowns, compared to a 100%-equity fund. This fund also has a $3,000 minimum investment requirement.
Vanguard Dividend Growth Fund (VDIGX)
"Less experienced investors may benefit from focusing on well-diversified funds with an emphasis on higher-quality securities," says David James, managing director at Coastal Bridge Advisors. "Inevitably, the markets will correct at some point and that is likely to touch any newbie's nerves, but knowing that you own high-quality securities can help them get through a tough period of time." For a focus on quality, consider VDIGX.
This mutual fund actively selects domestic stocks that have a history of dividend growth and solid fundamentals. Notable quality names in the fund's top holdings include Microsoft Corp. (MSFT), UnitedHealth Group Inc. (UNH) and Visa Inc. (V). Given the focus is on dividend growth, the fund's 30-day SEC yield is lower than most dividend funds, at 1.6%. VDIGX charges a 0.3% expense ratio.
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