Good news: If your retirement nest egg sits with Vanguard, you potentially have access to a lot of great funds without leaving the Vanguard family. But there’s a hitch. The sad fact about investing for retirement in a 401(k) is that your options are limited to the funds your plan administrators choose to make available. Typically, those options are limited to middle-of-the-road funds the administrators deem safe enough to keep employees from losing their shirts — and the administrators themselves from losing their jobs.

So even you have a Vanguard 401(k), you aren’t likely to be able to invest in the Vanguard Precious Metals & Mining Fund (VGPMX), for example. And to be quite honest, that’s a good thing. The fund is incredibly volatile, and investors have had a bad habit of buying at the fund’s highs and selling at the lows.

On the other hand, you aren’t likely to have access to the Vanguard Emerging Markets Index Fund (VEIEX), and that’s one fund I highly recommend for 401(k) investors (not for all of your money, of course, but a 5% portion).

In fact, I believe that as the global economy begins to heal, there will come a time when having an allocation to emerging markets will be a virtual requirement for investors with long-range objectives, like retirement. That’s why I’d insist you ask your plan administrator to add this fund to the mix of choices your company includes in its 401(k) plan now.

Here are several other Vanguard funds I’d like to see in your 401(k) portfolio. Some of these won’t be available to you — but you can go to your plan administrator and request them. You might need to rally some of your colleagues to apply pressure on your benefits department. But remember, it’s your retirement, not theirs. Don’t be shy.

You Can’t Go Wrong with the PRIMECAP Management Team

I strongly believe you should have a substantial portion of your 401(k) money in growth funds, and my first choice is a trio of Vanguard funds run by the redoubtable team at PRIMECAP Management: PRIMECAP (VPMCX), PRIMECAP Core (VPCCX) and Capital Opportunity (VHCOX).

Though all three funds are now closed to new investors outside of established 401(k) plans, they may be available to you. If so, consider yourself lucky, and don’t hesitate to give a big slug of money to this group of managers that takes a value-oriented eye to buying growth stocks. Their funds are the single largest component of my retirement and non-retirement accounts, as well as those of my wife and kids.

Vanguard Wellington

If you don’t have access to any of the PRIMECAP-managed funds, Vanguard Wellington (VWELX) is a terrific fund to have in your 401(k) as the core fund around which you build the rest of your 401(k) portfolio.

Because Wellington is a balanced fund, approximately 60% to 70% of its assets are in high-quality blue-chips stocks, and 30% to 40% are in top-notch investment-grade government and corporate bonds. You can easily get the entire bond portion exposure for your 401(k) portfolio from this fund.

What I like most about Wellington is the excellent management team. The fund also has the flexibility to invest as much as 25% of its equity assets in foreign securities, a good place to be right now. Plus, by investing in Wellington through your 401(k), you can avoid the hefty $10,000 minimum initial investment required to get into Wellington on your own.

If you decide to follow this strategy, I’d put about 40% of your money in Wellington, 40% in a good mid-cap stock fund (see my picks below) and 20% in the international funds I recommend below.

The Best Vanguard Mid-Cap Funds

My favorite Vanguard mid-cap funds are Vanguard Capital Opportunity (VHCOX) and Vanguard Selected Value (VASVX), though I don’t think many 401(k) plans hold them. You could ask for them or simply go with an index duo: Vanguard MidCap Growth Index (VMGIX) and Vanguard MidCap Value Index (VMVIX).

Of course, holding an equal weighting in these two index funds would be the same as investing in the broader Vanguard MidCap Index (VIMSX), but having the two funds allows you to adjust your mid-cap assets to lean more heavily toward the growth or value side, depending on what’s happening in the market now.

Right now, for example, you’d want to overweight the growth side of the ledger. The financial stocks that are a heavy component in the value index fund have had a healthy run of late, as have the tech stocks in the growth fund. But there’s a better chance that tech stocks will continue to gain momentum in the economic recovery, while the banks will back and fill until much sunnier economic skies shine.

The Best Vanguard International Funds

I recommend you have 10% to 15% of your 401(k) in international funds, and Vanguard has some stellar choices. Vanguard International Growth (VWIGX) is likely to be one of your 401(k) offerings, and it’s a fine fund to own.

With three managers, International Growth still holds just 170 stocks or so and close to 20% of the fund’s assets are in the top 10 stocks. That’s the kind of concentration I like to see. The managers also aren’t afraid to invest in emerging markets, something you don’t always find in more plain vanilla offerings.

As I said before, you’ll want to spice your foreign holdings with some of Vanguard Emerging Markets Index (VEIEX), and it’s worth your while to demand your 401(k) administrator give you access to this fund.

Globally, emerging economies are showing increased economic firepower, hungry consumers and the ability to take advantage of newly aggressive importers, exporters, manufacturers and entrepreneurs. Emerging Markets Index will give you nice exposure to one of the most powerful investment markets out there — China — with about 18% of its assets in this economic powerhouse.

In addition, Emerging Markets has investments in Brazil (16%), Korea (13%) and Taiwan (11%).

I’d also like to see you have some exposure to foreign small caps. Vanguard World ex-US SmallCap Index (VFSVX) is a new Vanguard fund that invests in small cap non-U.S. stocks. This fund tracks a FTSE benchmark of more than 3,000 stocks, and it will give you excellent exposure to this sector of the market.

The Best Vanguard Bond Funds

If you own Wellington in your 401(k), you will already have exposure to high-quality corporate and government bonds, so you don’t need to diversify into another bond fund in your 401(k). But if not, put about 10% of your 401(k) money in Vanguard Short-Term Investment-Grade Bond Fund (VFSTX).

This fund invests at least 80% of its assets in “investment-grade” or better short- and intermediate-term bonds, and that has been a good place to be lately. As banks have pulled in their lending, corporate bond issuance worldwide has gone through the roof. This fund has performed well this year and should continue to do so down the road.

Vanguard’s Intermediate-Term Investment-Grade Bond Fund (VFICX) is also a good choice, but will be a bit more volatile when economic growth causes interest rates to begin rising.

Putting It All Together

So if you have the chance to invest in any of the Vanguard PRIMECAP-managed funds, put most of your equity money there. If not, start with Wellington. Round out your equity holdings with Vanguard MidCap Growth and Vanguard MidCap Value Index, overweighting in one or the other depending on what’s happening in the market.

You’ll want 10-15% of your 401(k) money in international funds, including Vanguard International Growth, Vanguard Emerging Markets Index and Vanguard World ex-US SmallCap Index.

And if you don’t have a balanced fund like Wellington, which already owns bonds, put 10% of your 401(k) money in Vanguard Short-Term Investment-Grade Bond Fund or Vanguard Intermediate-Term Investment-Grade Bond Fund.

For a Long-Term, Growth-Oriented Investor

Using Wellington as Your Core
Wellington	Balanced (60% stock/40% bond)	40.0%
MidCap Growth Index	Stock – mid-cap growth	25.0%
MidCap Value Index	Stock – mid-cap value	15.0%
International Growth	Foreign stock – large	10.0%
Emerging Markets Index	Foreign stock – emerging	5.0%
World ex-US SmallCap Index	Foreign stock – small	5.0%
Using PRIMECAP-Run Funds
PRIMECAP / PRIMECAP Core / Capital Opportunity	Stock – Growth at a reasonable price	45.0%
Selected Value	Stock – mid-cap value	20.0%
International Growth	Foreign stock – large	10.0%
Emerging Markets Index	Foreign stock – emerging	5.0%
World ex-US SmallCap Index	Foreign stock – small	5.0%
Short-Term Investment-Grade Bond	Short corporate bonds	7.5%
Intermediate-Term Investment-Grade Bond	Intermediate corporate bonds	7.5%