- 1. Total Stock Market (ETF) - VTI
- 2. Target Retirement 2050 Fund (Investor Shares) - VFIFX
- 3. 500 Index Fund (Admiral Class) - VFIAX
- 4. REIT Index Fund (Admiral Shares) - VGSLX
- 5. Growth Index Fund (Admiral Shares) - VIGAX
- 6. Strategic Equity Fund (Investor Shares) - VSEQX
- 7. Total International Stock Index Fund (Investor Shares) - VGTSX
- 8. Total Bond Market (ETF) - BND
We’re big fans of Vanguard, but admittedly, it’s a bit more complicated than using a Robo Advisor. In this article, we break down what we think are the 8 best Vanguard funds, balancing both performance and cost.
Details are below but if you’re looking for a deeper dive on our logic as well as some colorful commentary than check out the podcast episode we did on this:
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Before we dive in, it’s important to mention why we are focusing so heavily on fees here. Due to their exponential nature, fees of just 1% can cause you to lose up to 25% of your earnings. That’s pretty horrendous and often what turns investors on to Vanguard in the first place.
If you’re interested in seeing for yourself I highly suggest you run some sample numbers via the free Personal Capital fee analyzer. In addition to running simulations, the analyzer will also pinpoint all of the overly fee-hungry funds across your accounts – retirement or otherwise.
1. Total Stock Market (ETF) – VTI
This ETF is Vanguard’s flagship fund and in our opinion, their best. It’s a blend of Large, Mid and Small cap companies in the US. It’s the lowest fee we’ve ever seen on a fund, and it’s mostly because the fund tracks a few smaller indexes allowing it to be largely automated.
Often when people mention they’re invested in Vanguard, they are referring to this fund.
2. Target Retirement 2050 Fund (Investor Shares) – VFIFX
This fund is a lifecycle fund, so it starts out with most stocks and slowly tapers into bonds over time. The point is you take on risk now while you’re young and slowly reduce risk as you reach retirement age, so big market swings don’t wipe out your retirement money.
While this fund isn’t their best regarding the fee, it covers a much-needed gap in most people’s portfolio. As you know, we’re big fans of buy and hold, and this fund fits in there perfectly.
2050 corresponds to your “typical” retirement date – usually when you’re 59 1/2. We often find ourselves picking funds with dates well past typical retirement age, so we get something a bit more growth-focused early on.
3. 500 Index Fund (Admiral Class) – VFIAX
This fund was the industries first for individual investors. Invest in 500 of the biggest, baddest companies based in the US. By definition, this fund is filled with the best Large Cap companies, and since it focuses on the biggest companies in the US, it’s the closest to tracking the US economy.
4. REIT Index Fund (Admiral Shares) – VGSLX
Why own a property and rent it when your money gets stuck in the home, and there is so much work to be done? Instead, invest in a REIT and take rental profit and liquidity. This index fund is not just a REIT but a fund of many REITs, so you’re heavily diversified in the rental game.
Note: You won’t much yield here which is a bit of a drag considering real estate is generally an income play. As a replacement for the income portion of your portfolio, we recommend Fundrise. Currently, their yield is 2.196x that of the Vanguard REIT.
Compared to VGSLX, Fundrise sticks to mid-size deals generally overlooked by huge funds and as a result, provides a markedly higher return. You can also opt to concentrate on income or appreciation focused funds.
5. Growth Index Fund (Admiral Shares) – VIGAX
With the Growth Index, Vanguard picks high-growth companies that will knock it out of the park for you. It’s a bit riskier, but the returns are solid.
Even though the focus is on high growth companies, the fund follows a buy and hold approach where once they locate a stable company they stay invested in them for awhile.
The air is crisp in Admiral.Tweet This
6. Strategic Equity Fund (Investor Shares) – VSEQX
Like the Growth Index fund but smaller companies, potentially higher growth and a large portion of the fund’s composition is chosen by a computer. The fee is the highest here because proportionately the most amount of work goes into running this fund. 0.29% isn’t a big fee by a long shot, but I do think it’s important to note.
Also, again, this one’s the riskiest of the bunch. Of your Vanguard investments, we wouldn’t recommend making this one more than 10% of the total amount you invest.
7. Total International Stock Index Fund (Investor Shares) – VGTSX
Similar in approach to our #1 choice, VTI, only this fund focuses only on companies outside the US. The fund covers both developed and emerging markets.
It’s pretty volatile, so we keep it as a small portion of our portfolio to help offset our heavy US exposure.