The 5 Worst Mistakes Investors at Vanguard Are Making Today

by Dan Wiener | November 7, 2011 11:00 am

Mistake #1: Investing in Index Funds

Why is investing in index funds the first mistake on the list? Because Vanguard’s managed funds dramatically outperform its index funds.

Take Vanguard’s 500 Index fund (MUTF:VFINX[1]), for example. It’s the family’s largest fund, with billions in assets.

Now, the average Vanguard investor hardly thinks twice when he or she invests money with this fund. Often, it’s their first choice because they think it’s the safest, best-diversified fund money can buy, since it mimics the S&P 500 and has low operating expenses.

But the 500 Index is not the safest index fund, nor is it the best-performing index fund. Investors have lost tens of billions in this fund.

The bottom line: Index funds, even the best ones, simply don’t compare to Vanguard’s actively managed funds.

Mistake #2: Ignoring the Demographics of the Economy

Here’s a demographic trend that investors need to watch very closely: As 77 million baby boomers turn 65 over the next few years, they’ll begin retiring, downsizing and needing more medical assistance. That’s 25% of our population looking for more medical attention.

Investing in the health care industry is one of the smartest moves investors can make now. The boomers are getting older, and they’ll need more and more medical devices, drugs, managed care, biotech innovations and so on.

Mistake #3: Jumping Into Bubble Sectors

You’d think that after the tech bubble burst, investors would steer clear of trendy sector funds — but they still make a killing at Vanguard.

Billions are being invested in sector funds right as we speak. Let’s face it, they’re tempting. But remember: Buying into a sector fund is actually a form of market timing, which individuals never seem to master.

What many investors also don’t realize is that sector investing is expensive (minimum investments hover around $100,000) and frankly, their performance over the long haul simply isn’t worth the price of admission.

Mistake #4: Failing to Diversify Outside the U.S.

The real stock market action these days is outside the U.S. Our growth rate is nothing like what’s happening overseas, and Vanguard is right there ready for action!

Depending on what part of the globe you’re taking your money, actively managed Vanguard funds may have about half the risk of Vanguard’s 500 Index!

Mistake #5: Not Getting Independent Advice

Most mutual fund newsletters track dozens, even hundreds, of mutual fund families, but keeping track of Vanguard’s hundreds of funds is a full-time job for an entire staff — and that’s precisely what I do.

Quite simply, I call them like I see them. You see, Vanguard is a business. Vanguard works for Vanguard. They profit from their crummy funds as well as the great ones.

I work diligently for investors everywhere — in fact, it’s my life’s work to know everything there is to know about Vanguard’s family of funds.

If you have any money at Vanguard—or are thinking of sending some there soon—I urge you to get Dan’s free report: The Action Plan for Vanguard Investors[2]. In it, you’ll not only get the names of the fund I mentioned above, but also other secrets Vanguard doesn’t want you to know!

  1. VFINX:
  2. The Action Plan for Vanguard Investors:

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