Stocks are off their 2016 lows but there are still some great buying opportunities to be had in the mutual fund market, especially with high-quality, low-cost funds. With this in mind, we put together the best Vanguard funds to buy on the dip.
To be clear, the best funds to buy during and immediately following market corrections aren’t necessarily the ones that have decreased the most in price.
For example, in the January 2016 correction, value stocks did not fall in price as much as technology stocks and energy stocks. But yet, it’s still a better time to buy large value stock funds now than it was a month ago.
Even buying shares of a S&P 500 Index fund can be a good idea now, especially if you’re ready to buy more, if and when the bloodbath continues.
Therefore buying more shares of almost any of the Vanguard funds can be a good idea now. But we narrowed down to a list of the seven best Vanguard funds to buy at reduced prices.
Best Vanguard Funds to Buy on the Dip: Vanguard Equity Income (VEIPX)
Expenses: 0.26%, or $26 for every $10,000 invested
Minimum Initial Investment: $3,000
A good way to get high-quality stocks selling at a discount is by holding one of the best actively managed value funds like Vanguard Equity Income (VEIPX).
Although value funds like VEIPX don’t typically see the steepest declines in major market sell-offs, a broad correction is a great time to gain access to value stocks like VEIPX top holdings Microsoft (MSFT), Wells Fargo (WFC) and JPMorgan Chase (JPM).
And one of the greatest attributes of buying actively managed funds is that you can put your money into the hands of a seasoned portfolio manager and let them do all the research, analysis, buying and selling.
Even better, you can buy and hold a low-cost fund with a manager like James P. Stetler, who has an outstanding performance track record and has been at the helm of VEIPX for 12 years.
The 10-year annualized return of 6.9% beats the S&P 500 index and 96% of funds in the large value category. Therefore any time there is a dip in prices can be a good time to pick up more shares of a fund like VEIPX.
Best Vanguard Funds to Buy on the Dip: Vanguard Growth Index (VIGRX)
Expenses: 0.23%
Minimum Initial Investment: $3,000
Growth stocks were among the hardest hit during the correction, which potentially makes Vanguard Growth Index (VIGRX) a great beneficiary of a rebound.
VIGRX is full of large-cap growth stocks like Apple (AAPL), Amazon (AMZN) and Alphabet (GOOG, GOOGL) that could return to their price strength post-correction. Top sectors are technology, consumer cyclical and healthcare.
And if you don’t quite catch the bounce up after the correction, VIGRX makes a great long-term holding. The 10-year annualized return of 7.2% beats the S&P 500 index and nearly 80% of funds in the large growth category.
To cap off these qualities, VIGRX is passively managed fund that tracks the CRSP US Large Cap Growth Index. This insures a low cost, pure dose of growth stocks without the manager risk associated with actively managed funds.
Best Vanguard Funds to Buy on the Dip: Vanguard Information Technology Index (VGT)
Expenses: 0.10%
Minimum Initial Investment: $3,000
If you want to buy into one of the hardest hit sectors of the big January dip, one of the best funds to buy is Vanguard Information Technology Index (VGT).
Although best known for their passively managed mutual funds, Vanguard offers some of the best ETFs on the market and VGT is one of them. With a rock-bottom expense ratio and broad exposure to the super-charged growth stocks in the technology sector, VGT is a standout in the sector fund world.
By nature, tech stocks can become overpriced in bull markets, but they can also be oversold during corrections. Therefore, unless you think a recession is upon us, technology will likely come roaring back and be a market leader in 2016.
But like our other featured Vanguard funds, VGT can also make an outstanding long-term holding in a diversified portfolio of mutual funds and ETFs.
Best Vanguard Funds to Buy on the Dip: Vanguard Consumer Discretionary (VCR)
Expenses: 0.1%
Minimum Initial Investment: $3,000
The U.S. economy is not exactly surging with strength but it’s still growing and consumers are still buying more than just the bare necessities. Therefore funds like Vanguard Consumer Discretionary (VCR) can be standouts post-correction and beyond.
VCR holds 385 stocks of companies in the consumer discretionary sector, also known as consumer cyclical, which include holdings like AMZN, Home Depot (HD) and Walt Disney (DIS).
And with the economy near full employment, low interest rates and gas prices at multi-year lows, consumers may continue spending at retail stores, restaurants, hotels and entertainment outlets.
With that said, consumer discretionary stocks have strong short-term potential, but tend to lose favor in the latter stage of the business cycle.
Best Vanguard Funds to Buy on the Dip: Vanguard Energy Fund (VGENX)
Expenses: 0.37%
Minimum Initial Investment: $3,000
If you buy into the wisdom of getting greedy when others are fearful, now is a good time to buy into the energy sector, or add to existing shares, with a fund like Vanguard Energy Fund (VGENX).
With VGENX, you’ll get focused exposure to high-quality, large-cap energy stocks like Exxon (XOM), Chevron (CVX) and Pioneer Resources (PXD). And since VGENX steers clear of the riskier, more volatile smaller energy firms, you’ll also avoid the worst of the oil slide, while participating in the upside, when it returns.
VGENX is also a long-term standout and has historically outperformed most other energy sector funds, highlighted by the five-, 10- and 15-year annualized returns that all outrank at least 80% of category peers.
Best Vanguard Funds to Buy on the Dip: Vanguard Emerging Markets (VEIEX)
Expenses: 0.33%
Minimum Initial Investment: $3,000
Emerging markets funds are great diversification tools and big price drops make for good opportunities to pick up a few more shares of quality funds like Vanguard Emerging Markets (VEIEX).
With China’s weakness in the spotlight, we’re likely to see more downside for emerging market stocks. But smart investors don’t try to pick a bottom, they buy more shares at lower prices in the short term with an eye on the long term.
In other words, with regard to buying opportunities in weak areas that may get weaker, long-term investors can look to dollar-cost average down, rather than trying to time an absolute bottom.
And when uncertainty is high, a low-cost diversified fund like VEIEX, which holds nearly 3,000 stocks, can be a smart move, both in the short term and in the long run.
Best Vanguard Funds to Buy on the Dip: Vanguard High-Yield Corporate (VWEHX)
Expenses: 0.23%
Minimum Initial Investment: $3,000
The best bond funds to hold now are those that hold high-yield corporate bonds, but steer clear of the worst of the junk. And after a brief decline in prices, now is a good time to buy shares of funds like Vanguard High-Yield Corporate (VWEHX).
During market corrections, investors tend to sell out of what they perceive to be the higher risk securities, such as technology stocks, small-cap stocks, emerging markets stocks and junk bonds.
In the January 2016 correction, VWEHX fell more than 3%. But the fundamentals of fixed income investing haven’t changed much since 2015. Interest rates are still painfully low, price risk is rising and the highest quality bonds are still paying next to nothing. Therefore investors looking for yield are challenged to find the right balance of risk and yield.
But high-yield corporate bond funds like VWEHX can strike that balance. The 30-day SEC Yield for VWEHX is 6.5%. And most of the fund’s holdings are just below investment grade.
In closing, and in reflection of our featured best Vanguard funds, market corrections can present buying opportunities in the short term, but volatility and downside risk can remain.
But long-term investors can benefit the most by picking up more shares of high-quality funds at reduced prices.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.
