3 Best Vanguard Funds for a Down Market

If you're looking to reduce downside risk in a choppy market, these three Vanguard funds can do the trick

Vanguard funds are great tools for long-term, buy-and-hold investment strategies, but there are a handful of Vanguard funds that can also make for smart, short-term defensive plays in a down market.

Vanguard funds
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Furthermore, some of the best Vanguard funds are conservative balanced funds or defensive sector funds, meaning Vanguard investors can have their cake and eat it too. Investors can find outstanding core holdings, but also add satellite holdings with low correlation to the major market indices.

This might involve buying one low-cost, diversified, conservative balanced fund, or it might be the addition of a few sector funds to an existing portfolio. This is investing in true Vanguard fashion! Keep things simple, keep costs low and employ diversification.

With that backdrop, here are three of the best Vanguard funds for a down market.

Best Vanguard Funds for a Down Market: Vanguard Wellesley Income Fund Investor Shares (VWINX)

Best Vanguard Funds for a Down Market: Vanguard Wellesley Income Fund Investor Shares (VWINX)
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Expenses:
0.23%, or $23 annually for every $10,000 invested
Minimum Initial Investment: $3,000

The smartest way to beat a bear market is with simple asset allocation and a well-managed, low-cost conservative fund like Vanguard Wellesley Income Fund (VWINX).

Whether you want to use VWINX as a core holding or as a place to park your money when markets turn choppy, you can rest assured that you’ll minimize the downside while still participating in the upside when it comes.

For a recent example, the first two months of 2016 were full of volatility and downside pressure. Year-to-date, VWINX remains positive with a 0.2% gain, while the S&P 500 index is struggling at -5.1%.

The portfolio is solidly conservative with an allocation of approximately 38% stocks, 59% bonds and 3% cash. On the stock side, you’ll get large caps like Microsoft Corporation (MSFT), Wells Fargo & Co (WFC) and JPMorgan Chase & Co. (JPM). The bonds consist primarily of high-credit-quality corporations and U.S. Treasury notes.

Best Vanguard Funds for a Down Market: Vanguard Precious Metals and Mining Fund (VGPMX)

Best Vanguard Funds for a Down Market: Vanguard Precious Metals and Mining Fund (VGPMX)
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Expenses:
0.29%
Minimum Initial Investment: $3,000

Vanguard investors looking for a good diversification tool in volatile markets are wise to consider the Vanguard Precious Metals and Mining Fund (VGPMX).

VGPMX does not track the price of gold like many mainstream precious metals mutual funds and ETFs; instead, it holds stocks of mining companies, such as Agnico Eagle Mines Ltd (USA) (AEM), Nevsun Resources (USA) (NSU) and Randgold Resources Ltd. (ADR) (GOLD).

Accordingly, investors should be careful not to confuse VGPMX with a gold ETF like SPDR Gold Trust (ETF) (GLD), which will often perform differently than VGPMX. For example, year-to-date 2016, VGPMX is up 20.8%, beating GLD, which is up 16.9% thus far in the year. However, in 2015, VGPMX was down 29.4%, while GLD dropped only 10.7%.

Again, as with many niche fund types, VGPMX can be a good diversification tool, but is not a wise market timing instrument. Therefore, I suggest an allocation of just 5% to 10%.

Best Vanguard Funds for a Down Market: Vanguard Ultra-Short-Term Bond Fund Investor Shares (VUBFX)

Best Vanguard Funds for a Down Market: Vanguard Ultra-Short-Term Bond Fund Investor Shares (VUBFX)
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Expenses:
0.20%
Minimum Initial Investment: $3,000

If you’re looking to escape the market risk of stocks and you’re also concerned about the interest rate risk of long-term bonds, you may want to take a look at Vanguard Ultra-Short-Term Bond Fund Investor Shares (VUBFX).

In a market environment where stock prices are headed downward but the risk of declining bond prices also looms, investors are hard-pressed to find investment types that can shield them from most of that market risk while also giving them more of a return than money market funds can offer. Currently, VUBFX yields 0.87%.

VUBFX holds a combination of money market instruments and short-term, high-quality bonds. Although prices can fluctuate, the principal risk is lower than bond funds with longer maturities.

Like the other featured Vanguard funds for down markets, VUBFX isn’t designed to be a market timing tool, but it can be used wisely as a part of a diversified portfolio to reduce market risk.

As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he holds VWINX in some client accounts. 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.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/03/best-vanguard-funds-vwinx-vgpmx-vubfx/.

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