For people looking to diversify their assets, investing in Vanguard Funds is a good option. The Vanguard Group, an American registered investment advisor, has provided mutual funds and index funds to millions of investors in the past. It is known to promote low-cost, beginner-friendly investment for individuals with little to no knowledge about the trade.
If you wish to know more about earning additional income through investing in bonds and index funds, this article is right for you. We will help you identify the best Vanguard Funds buy and hold this year. Also, we clarify how each type of index fund.
What Are Vanguard Funds?
Vanguard funds are a type of index funds managed passively through a so-called index-sampling strategy where it tracks a benchmark index. This index is a list of companies grouped based on specific categories like geography (domestic, regional, international) or size (small-cap, mid-cap, large-cap). Vanguard earns money by charging expense ratios which is a fee paid by clients in exchange for the company’s job of managing the index funds for them.
Many investors choose vanguard because they are known to offer one of the lowest expense ratios in the market today. Also, even with a little money you have, you can create an investment. Businessmen like Warren Buffett, who is the CEO of Berkshire Hathaway as well as dozens of other companies, advocates the use of Vanguard funds because it brings investment to the masses. Investment advisors like this company make it easier for lay citizens to dabble in the world of investment.
How Do Vanguard Funds Work?
Vanguard is the world’s largest issuer of mutual funds and is the second-largest issuer of exchange-traded funds (ETFs). Investors who buy from Vanguard are not charged with fees or commissions. Instead, they have to pay for the so-called expense ratios. The expense ratios for mutual funds and ETFs are calculated by computing the operating costs of the fund and divide them by the assets under management (AUM).
For many investors, Vanguard’s low expense ratio is the reason why the company is the best investment advisor there is. To give you an idea, the company’s expense ratios for its mutual funds are around 80% less than what other companies offer. For those who wish to keep their investments for the long term, they could save thousands of dollars in a 5-year or 10-year average.
Aside from saving fees, the ETF and mutual funds sold by Vanguard are often cited as profitable. Anecdotes from individuals who have invested through Vanguard swear by the efficiency and effectiveness of Vanguard as an advisor. People looking to diversify their savings or retirement funds choose to invest in this company.
Top 10 Best Vanguard Funds for 2021
When is the perfect time to save? The answer to this question is always now. Admittedly, there is so much to unravel and understand when it comes to investing. Terms like stocks, mutual funds, government bonds, and many others are a challenge for individuals who do not have prior experience in investing.
Lack of knowledge on stocks, ETFs, and mutual funds should not deter you from starting to build your investment portfolio. In fact, financial advisors recommend individuals to start investing in small-cap to mid-cap funds this year. Do not be content with paying off debts on your credit cards or buying real estate properties. Vanguard funds below are a good starting point in starting your investment journey.
To use Vanguard funds is to choose one or two of the many index funds they offer. As an investor, you can choose which fund you think will give you the biggest return in the long term. In spite of this, it is important to remember that choosing one specific type of ETF is like betting on a particular industry or stock market niche. Hence, it is important to choose an ETF that you think will have a good performance in the long term.
1. Vanguard Dividend Growth Investor (VDIGX)
- Type: Dividend growth
- Market value: $40.8 billion
- Dividend yield: 1.7%
- Expense ratio: 0.22%
Investors earn some income by being exposed to dividend-focused companies from various industries based in the United States. The fund tracks the performance of high-quality companies that are known to have the ability to grow their dividends in a certain period of time. The risk of VDIGX is that it is fully exposed and dependent on the domestic stock market. A downfall in the domestic stock market could mean a loss to the investors of this fund.
Investment advisors often claim that investing in the Vanguard dividend growth fund is the best choice one can make this year. It is the best actively managed dividend growth funds in the market today. It is more stable than other funds in this list, which means less risk to you as an investor. The minimum investment for this fund is $3,000.
2. Vanguard Dividend Appreciation ETF (VIG)
- Type: Dividend growth
- Market value: $51.1 billion
- Dividend yield: 1.7%
- Expense ratio: 0.06%
This fund tracks the performance of the NASDAQ US Dividend Achievers Select Index, which is previously known as the Dividend Achievers Select Index. Somehow, it is similar to the approach of VDIGX. The only difference is that this ETF mainly relies on the rules-based system. Human managers play a very little role when it comes to managing it. Choosing between VIDGX and VIG is a matter of choosing between human controllers and a rules-based control system.
3. Vanguard Short-Term Investment-Grade Investor (VFSTX)
- Type: Short-term bond
- Market value: $61.5 billion
- SEC yield: 2.2%
- Expense ratio: 0 .20%
While the first two funds have more risk, more reward approach, this index fund is particularly notorious for having less risk and less reward. It is a short-term fund that invests in high- to medium-quality, investment-grade bonds with short-term maturities. It invests primarily in corporate bonds, U.S. government bonds, and pooled consumer loans.
This investment is for individuals who have short-term savings goals and who are willing to see only a minimal price movement. The minimum investment for this fund is $3,000. Meanwhile, the fund advisor is Vanguard Fixed Income Group.
4. Vanguard Limited-Term Tax-Exempt Investor (VMLTX)
- Type: Limited-term municipal bond
- Market value: $29.5 billion
- SEC yield: 1.3%
- Expense ratio: 0 .17%
This one is considered as a low-cost municipal bond fund that wishes to have an income exemption from federal taxes. It has an index of more than 6,000 municipal bonds. Investors of this fund face minimal risk, especially that municipal bonds are less likely to default than corporate bonds. Oftentimes, it is chosen by groups and individuals who belong to higher tax brackets.
The minimum investment for this fund is $3,000. Also, the fund advisor is Vanguard Fixed Income Group. If you wish to save on the expense ratio, you can choose Admiral Shares (VMLUX) instead.
5. Vanguard Health Care Investor (VGHCX)
- Type: Health sector
- Market value: $47.5 billion
- Dividend yield: 1.1%
- Expense ratio: 0 .34%
This is an actively managed fund that has been in existence for more than two decades now. It is a low-cost index fund that tracks the performance of domestic and international companies belonging to the healthcare industry, which includes medical research facilities, medical supply companies, and pharmaceutical firms. One advantage of this fund is that it has geographical diversity as it invests in companies based in various parts of the globe.
Meanwhile, one downside of this investment is that investing here means investing solely in the health care sector. A good way to balance this out is to invest in other sectors. This fund is best for those who have a diversified portfolio with a long-term horizon. It remains one of the best actively managed funds offered by Vanguard. By the way, the minimum investment here is $3,000.
6. Vanguard Wellington Investor (VWELX)
- Type: Balanced
- Market value: $110.7 billion
- SEC yield: 2.3%
- Expense ratio: 0 .25%
This one is considered the oldest mutual fund offered by Vanguard. It is an investment to both stocks and bonds in various economic actors. It is particularly known for having a broad diversification and a well-balanced asset class. It has a medium risk and medium reward scheme.
Take note that you can only buy this fund directly from Vanguard. The minimum investment fees or amount here is $3,000. Also, for this mutual fund, Wellington Management Company LLP will serve as your fund advisor.
7. Vanguard Total Stock Market Admiral (VTSAX)
- Type: Large blend
- Market value: $874.5 billion
- Dividend yield: 1.7%
- Expense ratio: 0 .04%
It is considered the biggest index fund offered by Vanguard. Hence, for some, it is the best vanguard you can buy any day. This fund exposes investors to the entire United States equity market, which includes small-cap, mid-cap, and large-cap stock funds. It is mainly for investors looking for a low-cost investment who are willing to bet on the U.S. stocks market.
This is popular because it is low cost, has a broad diversification, and can be efficient when it comes to tax. It has a relatively high risk and high reward capacity. Also, it has a very low expense ratio. Note that you have the option to buy this as an ETF.
8. Vanguard International Growth (VWIGX)
- Type: Foreign
- Market value: $38.8 billion
- Dividend yield: 1.2%
- Expense ratio: 0 .45%
While VTSAX focuses on the domestic market, this International Growth Fund focuses on non-American companies with high growth potential. Investors are apprehensive to invest in this fund because it is less stable than the domestic fund. On the other hand, it is a good choice for those wanting to be less dependent on the U.S. economy.
This is an aggressive type of investment. But don’t worry because the 10-year average of the fund has been nothing but positive. This is mainly because of the fact that companies overseas have been growing in the past decade. Its 10-year average return is at 10.38% while its 5-year average is at 16.25%.
9. Vanguard S&P Small-Cap 600 ETF (VIOO)
- Type: Small-cap stock index
- Market value: $1.1 billion
- Dividend yield: 1.4%
- Expense ratio: 0 .15%
This ETF tracks the performance of stocks belonging in the S P Small-Cap 600 index, which is a list of 600 small companies based in the United States. Notably, the share value of this fund fluctuates abruptly compared to bond funds. Investing here is best for those who have long-term goals and are willing to face high risk and high reward.
It is an aggressive type of investment. People investing here are often individuals who believe in the capability of the US stock market index fund. Investment advisors suggest that investors should purchase this ETF because it will continue to continue growing in the long term. To give you an idea, the top 3 of its largest holdings as of October 2020 are NeoGenomics Inc., Kinsale Capital Group Inc., and Stamps.com Inc.
10. Primecap Odyssey Stock (POSKX)
- Type: Large blend
- Market value: $10.8 billion
- Dividend yield: 1.0%
- An expense ratio of 0. 66%
For those looking for a Primecap product from Vanguard, POSKX is a good chance for new investors to get one. This fund is managed by various fund managers. Most of the stocks of this fund are invested in the technology and health care industries. Hence, investing in this fund is risky, but on many occasions, the gains are big too.
Investing in this is not as affordable as investing in other actively managed funds of Vanguard. Despite this, some advisors claim that the 10-year average return of this fund is expected to be high.
Vanguard index funds have been offering affordable and reliable options of investment for the general American population in the past decades. People who wish to diversify their investment portfolio choose to get one or more of the ETFs offered by the company.
It is noteworthy too that aside from investors belonging to a high tax bracket, there are also vanguard index funds sold made for just looking for minimum investment options or those who have bit built an investment portfolio.
Also, take note that the 10 index funds discussed above are only the top best choices of index fund investment in 2021. Needless to say, Vanguard has a long list of other products with the potential to become a high growth index fund.
It includes Vanguard 500 Index Fund Admiral Shares (VFIAX), Vanguard Total International Stock Index Fund Investor Shares (VGTSX), Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX), and Vanguard Total Stock Market Index Fund Investor Shares (VTSMX). These Vanguard index funds can also be a good investment in the next months or years to come.
Understandably, the topic of investing is difficult to understand. If you wish to learn more about Vanguard index funds, the fees associated with it, and the expense ratio tied to these funds, browse more of our articles on Investoralist.
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