7 Best Vanguard Funds to Buy and Hold

With zero-commission brokerages, continuous coverage of trendy stocks like Tesla Inc. (ticker: TSLA) and the extreme fluctuations of meme stocks like GameStop Corp. (GME), it's easy to overlook the benefits of a buy-and-hold strategy.

However, the approach of accumulating wealth slowly over time is not only viable but also accessible for the average investor, who may not have the time, expertise or desire to pick individual stocks.

Consider the hypothetical example of an individual who invested $10,000 in the longstanding Vanguard 500 Index Investor Fund (VFINX) in January 2000.

Despite experiencing three consecutive years of losses during the dot-com bubble and a 37% downturn in 2008 due to the financial crisis, a steadfast investor who continuously reinvested dividends would have achieved an annualized return of 7.1%, bringing their initial investment to $52,673 by the end of April 2024.

But had this person begun their investment journey even earlier in 1985, the additional 15 years of compounding would have yielded an annualized return of 11.35%, resulting in a larger final balance of $687,061.

This exemplifies the principle that time in the market often outperforms timing the market. However, this is assuming the investor could psychologically withstand the ups and downs, including watching their investment drop by as much as 50% at times, with average fluctuations nearing 15%.

For buy-and-hold investors, the process can be made more bearable by adhering to key principles: maintaining broad diversification across sectors, geographies and asset classes, minimizing fund fees, and consistently reinvesting dividends.

Fortunately, Vanguard's extensive range of 266 mutual funds and 86 exchange-traded funds (ETFs) provides ample opportunities for this investment approach.

Here are seven of the best Vanguard funds to buy and hold in 2024:

Vanguard 500 Index Fund Admiral Shares (VFIAX)

The present-day equivalent of VFINX available to retail investors is VFIAX. This low-cost mutual fund tracks the S&P 500 index for a 0.04% expense ratio. To put it in perspective, if you invested $10,000 in VFIAX, you could expect to pay just $4 in annual fees. However, it is a Vanguard Admiral Shares mutual fund, so there is a $3,000 minimum investment required to access it.

The S&P 500 index tracked by VFIAX includes 500 large-cap U.S. stocks selected via a strict methodology and a committee process. It covers all 11 market sectors and is weighted by market capitalization, meaning the bigger a company is, the greater its weight in the index. Top holdings currently include Microsoft Corp. (MSFT), Apple Inc. (AAPL), Nvidia Corp. (NVDA) and Amazon.com Inc. (AMZN).

Vanguard Total Stock Market ETF (VTI)

"I still believe that a quality ETF for a long-term growth portfolio from Vanguard is VTI, especially for investors who are not really near retirement and have the ability to invest monthly in up or down markets," says Jim Penna, senior manager of retirement services at VectorVest Inc. This ETF is also available in mutual fund form as the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX).

Because it is also market-cap weighted, VTI's top holdings are very similar to VFIAX. However, its benchmark, the CRSP U.S. Total Market Index, is far broader, tracking roughly 3,200 more mid- and small-cap stocks not featured in the S&P 500. The result is comprehensive U.S. market exposure at a low 0.03% expense ratio, with a tax-efficient 2.2% portfolio turnover rate.

Vanguard Wellington Fund Investor Shares (VWELX)

"Launched in 1929, the Vanguard Wellington fund has seen it all – the Great Depression, World War II, the intense bear market of the 1970s, the subsequent bull market of the '80s and '90s, the global financial crisis and the COVID-19 pandemic, just to name a few," says Brian Miller, senior investment specialist on the multi-asset solutions team at Vanguard.

Unlike the previous funds, VWELX does not passively track an index. Instead, Vanguard's research team actively selects a portfolio of large- and mid-cap stocks with high-quality, above-average dividends and low valuations for two-thirds of its portfolio. The remaining one-third is invested in Treasury, agency and investment-grade corporate bonds. VWELX charges a 0.26% expense ratio.

Vanguard Target Retirement 2070 Fund (VSVNX)

"Vanguard's suite of target retirement funds can be a complete portfolio solution for investors who want a simple, globally diversified portfolio that adjusts its risk profile over time," Miller says. "Simply pick the target date closest to when you plan to retire, and the fund allocates your assets to a low-cost mix of stocks and bonds that gradually gets more conservative as you approach retirement."

If it is offered in a 401(k) plan, a recent college graduate entering the workforce may find a Vanguard target-date fund like VSVNX appealing. As its name suggests, VSVNX is intended for buy-and-hold investors looking to retire around 2070. Currently, the fund features a 90% global equity and 10% global fixed-income split for a 0.08% expense ratio, suitable for a growth-oriented, longer time horizon.

Vanguard Value ETF (VTV)

The "value factor" stems from a large body of research, notably by Eugene Fama and Kenneth French, that shows how stocks with a high book-to-market ratio have historically outperformed. Compared to the Benjamin Graham method of value investing that focuses on stock picking, adherents of Fama and French systematically screen many stocks to construct diversified portfolios tilted toward one or more factors.

For passive exposure to the value factor at a low 0.04% expense ratio, Vanguard offers VTV. This ETF tracks the CRSP U.S. Large Cap Value Index, and currently has price-to-book and price-to-earnings (P/E) ratios of 2.8 and 19.3, respectively – lower than VTI. Top holdings in VTV include Warren Buffett's Berkshire Hathaway Inc. (BRK.B), JPMorgan Chase & Co. (JPM) and ExxonMobil Corp. (XOM).

Vanguard Small-Cap Value Index Fund Admiral Shares (VSIAX)

Another notable Fama-French factor that buy-and-hold investors can screen for in an attempt to beat the market is size. This factor refers to the historical tendency of stocks with a smaller market capitalization to outperform larger ones. It can be combined with other factors such as value to implement a "multi-factor" strategy. A great example is VSIAX, which targets small-cap value stocks.

VSIAX's small-cap value strategy is implemented in a systematic manner by passively tracking the CRSP U.S. Small Cap Value Index. At present, this mutual fund holds around 850 stocks with average P/E and price-to-book ratios of 14.5 and 1.8, respectively, with a median market cap of $6.9 billion. VSIAX charges a 0.07% expense ratio and requires a $3,000 minimum investment.

Vanguard Dividend Appreciation ETF (VIG)

Two other notable Fama-French factors of use to buy-and-hold investors are profitability and investment. Respectively, these factors refer to the historical tendency for stocks with high operating profitability and conservative capital investments to outperform their peers. To capture these stocks, investors can use a Vanguard dividend growth fund like VIG, which provides statistically significant loadings to both factors.

VIG's benchmark is the S&P U.S. Dividend Growers Index, which requires constituents to attain a 10-year consecutive streak of dividend growth. It also eliminates the top quartile of potential holdings based on yield to reduce exposure to companies with potentially unsustainable payouts. Currently, investors can expect an above-average 1.8% 30-day SEC yield and a 0.06% expense ratio.