7 Best Vanguard Funds to Buy and Hold
Vanguard funds combine solid performance and low costs for buy-and-hold investing.
Low-cost funds for diversification.
Vanguard funds offer a low-cost way to passively invest with index funds, which may appeal to you if you favor a buy-and-hold strategy. It's the largest no-load mutual fund company and the biggest player in exchange-traded funds, which provide an even cheaper alternative to investors, says Andrew Latham, managing editor of SuperMoney.com. "There's no downside to investing in Vanguard if you're a buy-and-hold investor." Building a solid portfolio comes down to choosing the right funds to include, based on your goals, risk tolerance and timeline for investing. Here are seven of the best Vanguard mutual funds to consider as you play the investing long game.
Vanguard Total Stock Market Index Fund Investor Shares (ticker: VTSMX)
One of the most attractive things about Vanguard funds is that they make it easy to build a diversified portfolio inexpensively, Latham says. VTSMX could be a good fit if you're interested in building a three-fund portfolio spanning U.S. stocks, international stocks and bonds using Vanguard mutual funds. The fund tracks the performance of the CRSP US Total Market Index, giving you exposure to some of the biggest domestic stocks, including Facebook (F) and Amazon.com (AMZN). Like other Vanguard funds, VTSMX has an expense ratio below the industry average, at 0.14%, and a low holdings turnover rate of just 4%. It's also one of the best-performing Vanguard funds, with a trailing 10-year return of 13.6%.
Vanguard Dividend Growth Fund (VDIGX)
Dividends can provide a steady stream of income for retirement. VDIGX is one of the best Vanguard mutual funds for dividends, owing to its investment strategy. "It's focused on owning companies that increase their dividends over time but trade at reasonable prices," says Jeffrey Barnett, president at Fintegrity. "Steady dividend growth demonstrates healthy business growth, financial discipline and shareholder-friendly management that collectively drive valuations higher." That includes top companies such as Coca-Cola (KO) and Johnson & Johnson (JNJ). It's among the best-performing mutual funds based on 10-year returns, which average 13.15%. Even with a slightly higher expense ratio of 0.27%, VDIGX could still be considered a bargain compared with other dividend growth funds.
Vanguard 500 Index Fund Admiral Shares (VFIAX)
VFIAX could be a good buy-and-hold fit if you want an index fund that uses that S&P 500 as its benchmark. From a cost perspective, it's easily one of the cheapest Vanguard funds to own, with an expense ratio of 0.04%. Similar to Vanguard Total Stock Market Index (VTSAX), VFIAX takes on an average amount of risk but produces above-average returns compared to similar index funds, says Alan Schoenberger, certified financial planner and founder of Endeavor Financial Planning in Melville, New York. That can pay off if you're committed to following the buy-and-hold course for the long term. Based on a 10-year trailing return of 13.95%, this fund is another top Vanguard performer.
Vanguard Total International Stock ETF (VXUS)
Vanguard's selection of ETFs, meaning mutual funds that trade like stocks, shouldn't be overlooked when mapping out a buy-and-hold plan. VXUS is a solid pick when including Vanguard funds that offer international stock exposure. This fund tracks the FTSE Global All Cap ex US Index, which includes companies such as Alibaba Group (BABA) and Nestle (NESN). Daniel Patterson, certified financial planner and founder of Sweetgrass Financial Planning in Mount Pleasant, South Carolina, says VXUS can be a good choice for increasing diversification while maintaining low portfolio turnover. That, along with a low expense ratio of 0.08%, makes this Vanguard ETF both tax- and cost-efficient for buy-and-hold investing.
Vanguard U.S. Growth Fund Admiral Shares (VWUAX)
Growth funds can boost your portfolio through long-term capital appreciation, and that's the main objective of VWUAX. This fund invests primarily in large-cap stocks with above-average earnings growth potential and reasonable price-to-earnings ratios. Paul Paquin, CEO and owner of Golden Financial Services, says this fund can be considered a winner based on the consistency of its track record. A 10-year average return of 17.88% puts it on the list of the best-performing Vanguard funds, and it still has a competitively low expense ratio of 0.28%. Paquin notes that VWUAX includes holdings that are poised to do well even with an uncertain economic outlook. Top holdings include Microsoft (MSFT), Apple (AAPL) and Netflix (NFLX).
Vanguard S&P Small-Cap 600 ETF (VIOO)
It's easy to focus on larger companies, but don't overlook the smaller hidden gems. VIOO is one of the best Vanguard funds for small-cap seekers, tracking the performance of the S&P SmallCap 600 Index. Holdings include companies like Exponent (EXPO), WD-40 Co. (WDFC) and La-Z-Boy (LZB). Opting for small-cap funds could be a good option during periods of stock volatility. "Markets go up and markets go down," says Guy Baker, founder of Wealth Teams Alliance in Irvine, California. "The big stocks recover fastest, but over time, the small-cap value stocks will return the highest gains." By the numbers, VIOO has a 0.1% expense ratio and returned 22.72% to investors in 2019.
Vanguard Real Estate ETF (VNQ)
Real estate can offer an inflationary hedge and act as a buffer against stock market volatility inside a buy-and-hold portfolio. VNQ is one of the best Vanguard mutual funds for broad real estate exposure since it uses the MSCI US Investable Market Real Estate 25/50 Index as its benchmark. "VNQ owns a broad range of U.S. commercial real estate including offices, apartments, retail and industrial," says Charles Self, chief investment officer at iSectors. "Investors should own some real estate since it provides diversification from the broad stock and bond markets." The Vanguard Real Estate ETF has an expense ratio of 0.12% and a 10-year average return of 9.67%.
Seven buy-and-hold funds positioned for the long term:
- Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)
- Vanguard Dividend Growth Fund (VDIGX)
- Vanguard 500 Index Fund Admiral Shares (VFIAX)
- Vanguard Total International Stock ETF (VXUS)
- Vanguard U.S. Growth Fund Admiral Shares (VWUAX)
- Vanguard S&P Small-Cap 600 ETF (VIOO)
- Vanguard Real Estate ETF (VNQ)
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