7 Best Vanguard Funds for Beginner Investors

Slick marketing and promises of high returns can easily draw many new investors toward exotic-sounding asset classes.

The allure of investments like private equity, commodities, hedge funds, private credit, sector-specific funds, leveraged funds and real estate is undeniable on the surface. However, the drawbacks of these alternatives often include high fees, illiquidity and complexity.

There's a compelling simplicity in building a diversified investment portfolio consisting of stocks, bonds and cash. Stocks offer growth potential, bonds provide income and stability, and cash acts as a buffer for liquidity and safety.

Today, beginners can construct a comprehensive portfolio covering all three of these asset classes through Vanguard's fund lineup, which includes 352 mutual funds and exchange-traded funds, or ETFs.

While some options are institutional-only, the majority are accessible to retail investors. In true Vanguard fashion, most of these funds are broadly diversified across sectors and geographies, and they're known for their low cost, with expense ratios dipping as low as 0.03%.

"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 August Wealth Management Group. "In addition, Vanguard's reputable status and client-owned mutual structure help instill trust and prioritize investor interests."

Here are seven of the best Vanguard funds for beginner investors:

Vanguard S&P 500 ETF (VOO)

To help beginner investors avoid "analysis paralysis," August recommends a two-part process for fund selection. "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 example, a young investor looking for long-term growth may pick a low-cost U.S. equity ETF like VOO, which tracks the S&P 500 index. Historically, this index has delivered excellent performance, but has also been quite volatile, so a high risk tolerance is essential. VOO costs a low 0.03% expense ratio and is also available as a mutual fund in the form of the Vanguard 500 Index Fund Admiral Shares (VFIAX).

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 delivers exposure to over 3,700 domestic stocks. This index is weighted by market capitalization, which means that larger companies are assigned greater allocations. As a result, VTSAX's top holdings are very similar to that of VOO, and both funds have performed virtually identically. VTSAX charges a 0.04% expense ratio.

Vanguard Total International Stock ETF (VXUS)

"For even broader diversification, investors can benefit from including international stocks in 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." This generally encompasses an allocation to both developed and emerging market countries.

Examples of the former include the U.K., Japan, Canada, Australia, France and Germany, whereas the latter encompasses China, India, Taiwan, Saudi Arabia and more. An ETF like VXUS, which tracks the FTSE Global All Cap ex U.S. Index, delivers exposure to all the aforementioned countries and more, holding over 8,500 stocks. VXUS charges a 0.08% expense ratio.

Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)

To put Vanguard's suggestion of holding 40% in international stocks in practice, investors can combine VXUS with VOO or VTSAX. Alternatively, they can opt for a globally diversified mutual fund like VTWAX, which tracks the FTSE Global All Cap Index. This fund currently holds over 9,800 market-cap-weighted stocks from U.S., developed and emerging markets for a 0.1% expense ratio.

VTWAX's portfolio is designed to reflect the relative weighted proportions of each country's stock market. Currently, this means around 62% to U.S. stocks, 3% in Canada, 25.6% in developed markets and 9.4% in emerging markets. However, these weights can change over time as various markets outperform or underperform, making VTWAX a dynamic representation of the global equity market's average.

Vanguard Total Bond Market ETF (BND)

"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." For low-cost exposure to a diversified portfolio of domestic-issued bonds, Vanguard offers BND at a competitive 0.03% expense ratio.

BND tracks the Bloomberg U.S. Aggregate Float Adjusted Index, which consists of over 11,000 U.S. government Treasurys, mortgage-backed securities and investment-grade corporate bonds averaging 8.5 years in maturity. It pays distributions on a monthly basis, and currently sits at a 4.5% 30-day SEC yield. It is also available as the Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX).

Vanguard Target Retirement 2060 Fund (VTTSX)

"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." Instead of combining BND with an equity fund, investors can opt for a managed solution like VTTSX.

This target-date fund is intended for investors looking to retire around 2060. Currently, its portfolio consists of roughly 90% in global stocks and 10% in global bonds. However, it will gradually adjust to become more bond-heavy and conservative as time goes on, in order to reduce risk and match an investor's shortening time horizon. VTTSX charges a 0.08% expense ratio.

Vanguard Dividend Appreciation ETF (VIG)

"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."

A notable Vanguard ETF that offers exposure to quality blue-chip stocks is VIG. This ETF tracks the S&P U.S. Dividend Growers Index, which requires holdings to have a 10-year history of dividend growth while excluding the top 25% yielding stocks. The result is a portfolio of robust, long-standing companies like Microsoft Corp. (MSFT), JPMorgan Chase & Co. (JPM) and Johnson & Johnson (JNJ) for a 0.06% expense ratio.