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The 3 Best Vanguard Funds to Hold Through 2020

It's important to look beyond the short-term when selecting the best funds

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The best Vanguard funds to buy now could very well be the ones that hold up better than the major stock market indices through volatile market environments, which will likely see a significant correction within the next few years. This makes the time between now and the year 2020 a crucial period to get right with your fund selection.

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When making recommendations to clients for the best funds to buy and hold, I like to focus more on the intermediate-term periods than the 10-plus-year time frames. Although I like to keep a long-term outlook, I find that the smartest period of time to consider while choosing mutual funds and exchange-traded funds is the three-year period.

The last three years were relatively easy to forecast — stocks would likely outperform bonds and cash; therefore we overweight the stock fund allocation. But the next three years or so could easily contain a bear market. We are most likely in the mature phase of the business cycle with a recession coming within the next few years, if not sooner.

So within that context, we chose three of the best Vanguard funds to hold through the year 2020.

Best Vanguard Funds to Hold Through 2020: Vanguard Balanced Index (VBINX)

Best Vanguard Funds to Hold Through 2020: Vanguard Balanced Index (VBINX)Expenses: 0.22%, or $22 per $10,000 invested annually
Minimum Initial Investment: $3,000

If you want to capture upside potential while limiting the downside between now and 2020, one of the best Vanguard funds to do the job is Vanguard Balanced Index (MUTF:VBINX).

The VBINX portfolio consists of approximately 60% stocks, most of which are large-caps like Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG, GOOGL), and Microsoft Corporation (NASDAQ:MSFT), and 40% bonds.

For a reference on the fund’s ability to limit the downside, consider the 22.2% drop during the worst of the most recent bear market in 2008, compared to a 37% drop for the S&P 500.

In fact, losing less during bear markets helps contribute to averaging more in the long run. The 15-year return for VBINX is 6.3%, which edges out the S&P’s 6.2% return for that period. Therefore holding VBINX could be beneficial far beyond 2020.

Best Vanguard Funds to Hold Through 2020: Vanguard Wellesley Income (VWINX)

Best Vanguard Funds to Hold Through 2020: Vanguard Wellesley Income (VWINX)Expenses: 0.23%
Minimum Initial Investment: $3,000

If you want to stay on the conservative side through 2020 but still have a good shot at getting outstanding returns, one of the best funds to buy is Vanguard Wellesley Income (MUTF:VWINX).

The experienced management team for VWINX has shown an uncanny ability to minimize risk while maximizing returns. The Wellington Management Company has managed VWINX since 1970 and returns have been ahead of category averages consistently, and often by a significant margin.

During the big downturn of 2008, VWINX only fell 9.8%, compared to a drop of 37% on the S&P 500.

More impressively, VWINX is beating stocks in the long run, as measured by its 6.7% 15-year annualized return, compared to 6.2% for that of the S&P 500, although the portfolio stays relatively conservative.

The fund generally maintains an asset allocation of roughly one-third stocks and two-thirds bonds. Top holdings were recently Microsoft, Johnson & Johnson (NYSE:JNJ), and Pfizer Inc. (NYSE:PFE).

Best Vanguard Funds to Hold Through 2020: Vanguard Health Care (VGHCX)

Best Vanguard Funds to Hold Through 2020: Vanguard Health Care (VGHCX)Expenses: 0.25%
Minimum Initial Investment: $3,000

If you’re looking for one of the best Vanguard funds to invest in a defensive sector, you’ll want to check out Vanguard Health Care (MUTF:VGHCX).

Any smart portfolio built to 2020 and beyond will include at least one good sector fund that focuses on a defensive sector like healthcare. The market and demographic forces that have propelled health stocks to performance leadership status over the last decade are sure to remain in place through 2020.

The largest segment of the U.S. population, the baby boomer generation, consists of Americans born between 1946 and 1964. Therefore, the age range is 52 to 70 — when health products and services ranging from pharmaceuticals, medical devices to hospitals are in high demand.

This means that top VGHCX holdings like Bristol-Myers Squibb Co (NYSE:BMY), UnitedHealth Group Inc (NYSE:UNH), and Allergan plc Ordinary Shares (NYSE:AGN) and similar stocks in the portfolio can outperform the S&P 500 in both the intermediate-term and the long-term time frames.

As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he holds VBINX and 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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