7 Best Vanguard Funds for Retirement
Vanguard offers some of the best bond funds for retirement investing.
A mix of choices for investors
Mutual funds can help diversify your retirement portfolio, whether you're looking for growth through equity exposure or dividend income. Vanguard has a reputation for offering low-cost index funds and exchange-traded funds to help investors achieve their retirement goals. Other brokers offer similar funds, but few can claim the track record Vanguard has earned. Choosing the right mix of Vanguard funds to include in a portfolio is no easy task given the wide variety. If you're wondering which Vanguard funds are superior, here are seven of the top options worth considering, including the best bond funds for retirement.
Vanguard Total Bond Market ETF (ticker: BND)
Bonds can act as a buffer against stock market volatility when investing for retirement. BND is one of the best bond funds Vanguard offers in terms of cost, yield and performance. The current 30-day SEC yield is 1.1%, while the fund has an almost rock-bottom annual expense ratio of 0.035%, or $3.50 for every $10,000 invested. The fund, which tracks the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, has a 10-year trailing return of 3.8%. Ryan Scribner, co-owner of personal finance site Investing Simple, says the Vanguard Total Bond Market ETF could be a great option for constructing a simple portfolio. "This fund works great for the two-fund portfolio approach, which is essentially where you invest in a low-fee bond fund and equity fund," he says.
Vanguard Total World Stock Index Fund (VTWAX)
If you're following the two-fund strategy, VTWAX could be a solid companion to BND. "Not only does this fund give you diversified exposure to companies in the U.S., but also internationally," Scribner says. Including international stocks in your retirement plan could make sense if you're hoping to diversify with large-cap stocks. For instance, Taiwan Semiconductor Manufacturing (TSM) and Tencent Holdings (TCEHY) are among the fund's top holdings, alongside large U.S. stocks such as Amazon.com (AMZN) and Facebook (FB). As a newer offering, the Vanguard Total World Stock Index Fund doesn't have the same lengthy track record as other Vanguard funds – but it could be a good addition if you're looking for a low-cost index option to gain exposure to foreign markets.
Vanguard Total Bond Market Index Fund (VBTLX)
The Vanguard Total Bond Market Index Fund is one of the best bond funds for retirement if you're looking for a mutual fund alternative to BND. Like the ETF version, this fund tracks the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which measures the performance of public, investment-grade bonds and fixed-income securities. VBTLX offers a similar 30-day SEC yield, at 1.08%, though the expense ratio is slightly higher, at 0.05%. Performance-wise, VBTLX is neck and neck with BND, based on the 10-year trailing return. But compared with BND, this fund has a much lower share price, which could make it an attractive choice if you're looking to take advantage of bargain buys for Vanguard bond funds.
Vanguard Total Stock Market Index Fund (VTSAX)
VTSAX is one of the best Vanguard index funds to consider for gaining exposure to the U.S. stock market in its entirety when planning for retirement. "This is a very broad index fund, meant to track the performance of domestic stocks of all sizes," says Robert Johnson, a professor of finance at the Heider College of Business at Creighton University. Specifically, the Vanguard Total Stock Market Index Fund uses the CRSP U.S. Total Market Index as its benchmark, which spans small-, mid- and large-cap stocks, as well as microcap stocks, that are traded on the New York Stock Exchange and Nasdaq. The fund's best features include a low 0.04% expense ratio and an investment turnover ratio of just 4% – which refers to the percentage of holdings that have been replaced over the past year.
Vanguard Target Retirement 2055 Fund (VFFVX)
Vanguard target-date funds can offer a streamlined approach to retirement investing, which you may appreciate if you're just entering the market. The idea behind target-date funds is for investors to use the fund targeting the year they aim to retire. For instance, if you plan to retire in or around 2055, VFFVX may suit your needs. The fund is diversified across domestic and international stocks and will shift its holdings toward more fixed income as 2055 approaches. By the numbers, the Vanguard Target Retirement 2055 Fund offers a 1.61% yield and a low turnover ratio of 8%. The fund's expense ratio is also low, at 0.15%, and it has a 10-year trailing return of 10.1%.
Vanguard Balanced Index Fund (VBIAX)
Balanced funds offer the best of both worlds, with a strategic mix of stocks and bonds. VBIAX features a 60/40 portfolio split. A full balance index strategy, such as the one offered by the Vanguard Balanced Index Fund, allows for a fully diversified portfolio in a one-stop shop. As an index fund, it's unique in that it tracks two underlying benchmarks: the CRSP U.S. Total Market Index and the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. This fund offers passive investing at a low expense ratio of 0.07%, with a 30-day SEC yield of 1.24%. One thing to note is that VBIAX has a higher turnover ratio compared with other Vanguard funds, at 37%.
Vanguard Long-Term Investment-Grade Fund (VWESX)
One final option to consider if you're interested in finding the best funds for retirement is VWESX. This bond fund is designed for those seeking retirement income and invests primarily in high-quality, fixed-income securities, with some medium-quality securities included in the mix as well. Compared with some of the other bond funds mentioned here, the Vanguard Long-Term Investment-Grade Fund offers one of the best yields overall, at 2.36%. It also features an impressive 10-year trailing return of 8.42%. As costs go, the fund is slightly more expensive than other Vanguard bond fund offerings. Even with an expense ratio of 0.22%, VWESX still rates as one of the most cost-efficient ways to build a bond retirement portfolio through Vanguard.
Seven of the best Vanguard funds for retirement:
- Vanguard Total Bond Market ETF (BND)
- Vanguard Total World Stock Index Fund (VTWAX)
- Vanguard Total Bond Market Index Fund (VBTLX)
- Vanguard Total Stock Market Index Fund (VTSMX)
- Vanguard Target Retirement 2055 Fund (VFFVX)
- Vanguard Balanced Index Fund (VBIAX)
- Vanguard Long-Term Investment-Grade Fund (VWESX)
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