How To Invest In Vanguard Mutual Funds

vanguard mutual funds

You may not know Vanguard is one of the largest asset management companies in the world. It now has about US6.2 trillion under management as of January 31. 2020. However, you must know more and more people invest in Vanguard for personal and institutional planning like retirement, education or wealth accumulation, and other goal-setting planning.

More and more investors pick Vanguard mutual funds as their tools for financial aims because it offers a series of benefits in investment returns and choices. You may be overwhelmed by its variety of funds. In the following, I will tell you how to invest in their funds!

Vanguard Mutual Funds: An overview

You must be overwhelmed by its 425 traditional funds. Vanguarduard has a long history of investing experience dating back to 1929. Of these, ETFs are members of the mutual fund family. The management styles and returns are similar for both types of funds; nevertheless, investors should note their differences. Let’s take a look at them:

  • Vanguard funds generally have lower-cost structures in their products; ETFs are suitable for tax-concerned investors. As a result of their nature, ETFs tend to be tax-friendly for high-income investors.
  • Mutual funds have only one price at the end of a trading day, while, like stocks, ETFs can be traded all of a day. That means, like stocks, there are multiple prices available to investors during business hours.
  • ETFs have lower cost-expense ratios than mutual funds. Mutual funds tend to have higher management costs and trading activities. 
  • Mutual funds require higher minimum investments than ETFs.
  • Finally, mutual funds are fit for investors active in fund allocations, but ETFs are suitable for people to hold long-term and make low-cost regular investments.

What are Vanguard Mutual Funds?

As you are aware, mutual funds hold a large number of securities in their portfolios. When you buy a stake in a mutual fund, you own a part of the securities. Moreover, Vanguard offers three significant shares to investors: Institutional Shares, Admiral Shares, and Investor Shares.

Expense ratios and minimum investment amount are the principal factors in the classes of shares. Institutional shares have the least expense ratios but the highest investment amounts, while Investor shares have the highest expense ratios and lowest minimum required investment amounts. Admiral shares are in the middle.

Vanguard increases redemption fees for its funds to discourage short-term speculations but doesn’t charge front-end and back-end commissions. Investors should benefit from the fee structures if they have long-term financial goals. However, investors should note many Vanguard ETFs are available on stock brokerages, so they need to pay commissions for ETF investment products.

The benefits are twofold: Funds own the company; therefore, Vanguard’s profit goes back to fund investors because they are the shareholders. That means if you invest in Vanguard funds, you are technically an owner of the company, and you will benefit from the invested fund’s share of Vanguard’s profits.

How does Vanguard Mutual Funds Work?

Unlike other fund houses, Vanguard isn’t owned by a group of outsiders. What is unique for Vanguard is the fund investors own the company. What does it mean? No other interest except for fund investors’ is the primary focus! 

No matter the funds: mutual funds, ETFs, Vanguard 500 index funds, or select funds, they serve only one: fund investors. In other words, Vanguard managers will use investment strategies for the benefits of the same boss: fund investors and Vanguard. Apart from the fund investment service, they also offer financial consulting and other professional services, and they count towards the company’s profits! Don’t you see it is a unique company!

Types of Vanguard Asset Classes

Vanguard runs a wide array of mutual funds domestically and internationally. Investors can choose asset classes from large-to-small caps, bond funds, domestic asset classes, and international ones, even from developed to emerging markets. Vanguard uses the following asset class to invest:

  • Money market funds: Short-term investments like certificates of deposits, bank deposits are issued by the US federal government, state and local governments, and banks. They are the most liquid investments but offer the lowest returns.
  • Bonds funds: Blue-chip companies issue investment-grade bonds. They offer steady income streams, and the yield is higher than the money market funds. The bonds can be a supplement to some high-risk investments for stable investments.
  • Stock funds: By Investing domestically and overseas, stocks are the highest risk investments. They offer the opportunity for optimal capital gains. The investing scope covers all across industries, companies of all sizes, stages, and all markets. 
  • Target date funds: It is a mix of stocks, bonds, and other securities. The portfolio combination may change according to personality and real-life situations. Some combinations may change from reducing stock holdings to increase bond holdings. Vanguard offers different percentage combinations of target-date funds to cater to investors of different stages in life. I suggest you should consult a financial advisor or investment professional before you make an investing decision.  

What sets Vanguard Mutual Funds Apart?

  • Low expense ratios: Contrary to traditional fund houses, Vanguard is owned by mutual fund investors. That said, investors owned the company. That may explain why the low cost and expense ratios are unique characteristics of Vanguard.
    Don’t ignore this: If you use the compound effect to calculate the cost savings, the savings can be substantial. I want to tell you the truth: in 2019, the average expense ratio for Vanguard mutual funds is 0.1%, while the average ratio for other mutual funds is 0.57% – a difference of 82% in costs!
  • Focus on the long-term: Vanguard management pledges value and long-term investing as principal approaches to investment strategies. According to official website, by December 31, 2020, their funds’ performances outrank their peers by 70%; 78%; 81% over three, five, ten years, respectively! What fantastic achievements!
    Long-term vision and value-based strategies are what make successes in performance. Management implements the approaches to fund investing and advising businesses in dealing with clients or portfolio buildups.

How to Buy Vanguard Mutual Funds

1. Open an account with Vanguard.

It takes a short time to open a brokerage account with Vanguard online. You must choose what type of account to invest in. There are ordinary taxable investment accounts, 401(K), individual retirement accounts, or 529 college savings accounts. By linking your bank account or another investment account for roll-over with your Vanguard account, you can immediately buy fund shares.

2. Buy Vanguard Mutual Funds in your Retirement Plans

Once you have an account with Vanguard, you can trade their fund shares online. Let me remind you: your goals should be compatible with the fund house. When your account is a retirement plan, you should adopt a buy-and-hold approach to maximize the advantages offered by Vanguard. Even if it is a taxable investment account, I suggest you use a mid-to long term strategy. Consulting a financial advisor is the first step to investing.

3. Open an Online Brokerage Account

Technology brings us convenience. You can now open an individual online brokerage account without going to brick and mortar store. You can buy or sell stocks, bonds, mutual funds, and exchange-traded funds online. However, this type of account is taxable. It means all the capital gains and dividends, and bond interests are taxable to the government. Finally, brokerage like TD Ameritrade, Fidelity, Charles Schwab, and E*Trade may charge against some trades; however, the current trend is zero commission. Do some investigations before making any decision!

Best Vanguard Funds to Buy and Hold

You intend to invest in Vanguard, take a look at the following five funds seriously:

1. Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)

The fund is a candidate for the sake of the portfolio buildup process. It covers stocks and bonds domestically and internationally. The benchmark index is CRSP US Total Market Index. It has access to blue-chip tech companies, like Amazon, Apple. The expense ratio is 0.14%, and the turnover rate is 4%. However, the past 10-yearly return is 13.60%.

2. Vanguard Dividend Growth Fund (VDIGX)

It provides a steady income stream to fund investors. By investing in companies with significant dividend growth, it has a trailing 13.15% return over the past ten years. The investees are all quality stocks like Coca-Cola. The expense ratio is 0.27%

3. Vanguard 500 Index Fund Admiral Shares (VFIAX)

Another excellent fund for a buy-and-hold strategy like Vanguard’s total stock market index fund investor shares(VTSMX) focuses on growth. Surprisingly, the expense ratio is just 0.04%. However, it has a trailing 10-year average return of 13.95%. It is a top performer for Vanguard!

4. Vanguard Total International Stock ETF (VXUS)

As the name implies, the index fund invests in international stock markets. Big names like Nestle and Alibaba are members of its portfolio. It tracks the FTSE Global All Cap ex US Index benchmark with an expense ratio of 0.08%. A fund fits for tax-efficient or long-term investors as well.

5. Vanguard US Growth Fund Admiral Shares (VWUAX)

This fund is growth-oriented and capitalizes on large-cap companies like Apple, Netflix. Capital appreciation is its primary growth objective. You will be impressed with the low expense ratio of 0.28%. But the past 10-year return is 17.88% so far!

To Sum Up

To invest in Vanguard mutual funds, you have three ways to do so:

  1. The most convenient is to open a retirement account with Vanguard on their website;
  2. You should begin investing in their mutual funds in your account and save for the future;
  3. You may choose to open a taxable account with major brokerages like TD Ameritrade, Fidelity.

You should keep in mind investing involves multiple risks, including the possible loss. I suggest you talk to investment professionals to understand your risk profiles and make some tests before making final decisions. Information gathering is essential before investing in your financial life, and you should look for trustworthy resources like investoralist. It provides a lot of professional analysis regarding financial planning and investing tips that save you time planning and investing. 

For your future, subscribe to Investoralist today! Happy investing!

You may not know Vanguard is one of the largest asset management companies in the world. It now has about US6.2 trillion under management as of January 31. 2020. However, you must know more and more people invest in Vanguard for personal and institutional planning like retirement, education or wealth accumulation, and other goal-setting planning.

More and more investors pick Vanguard mutual funds as their tools for financial aims because it offers a series of benefits in investment returns and choices. You may be overwhelmed by its variety of funds. In the following, I will tell you how to invest in their funds!