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The 8 Best Vanguard Funds

Our Top 8 Favorite Vanguard Funds

We’re big fans of Vanguard but admittedly, it’s a bit more complicated than Betterment.  Today we’ll break down what we think are the 8 best Vanguard funds.

Details are below but if you’re looking for a deeper dive on our logic as well as some colorful commentary than checkout the podcast episode we did on this:

The air is crisp in Admiral.

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1. Total Stock Market – VTI

NYSEARCA:VTIVanguard | MorningStar | Fee: 0.05% | 5yr Avg: 15.87%

This 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 largely 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 – VFIFX

MUTF:VFIFX | Vanguard | MorningStar Fee: 0.18% | 5yr Avg: 12.12%

This is a life cycle fund so it starts out with mostly 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 in terms of 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.

The 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 Admiral Shares – VFIAX

MUTF:VFIAX | Vanguard | MorningStar Fee: 0.05% | 5yr Avg: 15.67%

This was the industries first fund 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 Admiral Shares

MUTF:VGSLXVanguard | MorningStar Fee: 0.10% | 5yr Avg: 15.91%

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. Have your cake and eat it too. This is not just a REIT but a fund of many REITs so you’re heavily diversified in the rental game.

We’ve seen how much work it takes to manage properties so we prefer to offload that work to someone else and just take profits. This fund does that exceptionally well.

5. Growth Index Admiral Shares – VIGAX

MUTF:VIGAX | Vanguard | MorningStar Fee: 0.09%5yr Avg: 16.62%

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 generally pretty solid.

Even though the focus is on high growth companies, the fund generally follows a buy and hold approach where once they locate a solid company they stay invested in them for awhile.

6. Strategic Equity – VSEQX

MUTF:VSEQXVanguard | MorningStar Fee: 0.29% | 5yr Avg: 18.65%

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. Vanguard Total International Stock Index – VGTSX

MUTF:VGTSX | Vanguard | MorningStar Fee: 0.22% | 5yr Avg: 5.88%

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.

8. Total Bond Market – BND

NYSEARCA:BND | Vanguard | MorningStar Fee: 0.08% | 5yr Avg: 3.98%
Any well balanced portfolio has bonds in it. They’re much less sexy than stocks but are also much less risky. When you’re young, 10% of your portfolio should be in something similar to BND and as you get older you’ll increase that percentage significantly. Not coincidentally, this approach is very similar to what is already baked into a life cycle fund (fund #2). This is by far the best bond fund that we have seen for the price.
All the bonds that are in this fund are investment grade and it’s recommend that you hold this fund in the medium to long term based on its contents.

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Show Notes

LMM Ultimate Investor Strategy Blueprint:  Andrew’s article that lays some of the above information out in greater details.

Vanguard:  Get started with Vanguard here.

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  • Andrew

    I’m so glad for the show notes, it was hard to track the numbers mentioned without writing it down.

    • Yea, it was weird in that there was so much info to convey. I’m going to have to update the show notes with some links to the resources later. Added it to my Todoist (damn do I love that app now)!

  • jb1907

    I am 49 and have like 2% Bonds in BND. Short term bonds aren’t worth holding until rates go back up. I won’t go near long term bonds.

  • jb1907

    The Wall Street Journal barely talks about investing. You only need about six funds to be diversified. Then stop watching the news.

  • Great resource for a diversified portfolio, thanks for sharing!

  • Justin Canzano

    Hi Andrew-
    Great show, great website, and overall very informative. I am a new investor and please excuse my ignorance if this question is answered somewhere else in the articles:

    Would there be any particular down fall to investing in some of the funds mentioned above by buying the ETFs instead of Investor or Admiral Shares? I like the zero minimum of the ETFs. Seems like I can “get my feet wet” with a few Vanguard Funds if there is no minimum.

    Thanks!

    • Thanks Justin!

      I think it would be perfectly find to invest in the ETFs and in fact, I’d highly recommend it. While there are a bunch of small nuanced differences between the two I think the biggest thing is you can’t automatically invest in ETFs like you can with Mutual Funds. We’re very big on consistent monthly investing (even in small amounts) – that’s why we recommend the Mutual Funds.

      Also, if you buy the ETFs available with any brokerage account, you’ll be hit with transaction fees – so open an account directly with Vanguard.

      Hope that helps!

  • jb1907

    It makes no sense to have a target fund if you are going to have other funds as well. To me, it is all or nothing with those funds.

  • There is a school of thought that VTI alone is enough. Though it is US focused, most of it’s holding companies have sizable international revenues, anywhere from 20-80%. So, in effect, you are getting the benefit of global investing without the governance risks associated with international companies with opaque rules and less regulated capital markets.

    • True and to an extent I agree. That said, I do think there is value in small cap funds, emerging markets and real estate.

      It’s almost cliche to talk about diversification at this point but when you have a lot to lose you really want to make sure a bubble doesn’t wipe you out.