Dow Jones soars above 23,000. Is it too stretched? >>> READ MORE

The 10 Best Vanguard Funds for 2017

Use these Vanguard funds to build a complete portfolio, or just fill in some of the weaker spots in your existing portfolio

By Kent Thune, InvestorPlace Contributor

http://bit.ly/2hGzMk0

Source: Pixabay

Shifting market and economic currents will make diversification the underlying theme for choosing the best Vanguard funds for 2017.

The 10 Best Vanguard Funds for 2017The 2016 Donald Trump rally can continue into the coming year with sustained economic growth to support it. The challenge for investors, however, is that capital markets may get overheated. Stock prices are already getting ahead of the fundamentals as it is.

Also, a strong U.S. dollar and uncertainty over the timing and intensity of any 2017 interest rate hikes will shift market leadership among equity sectors as well as fixed-income instruments.

All of this makes for a ripe environment for volatility and possibly a significant correction in 2017.

In 2017, as in any calendar year, smart investors will ignore the short-term noise and instead focus on larger cyclical trends. With this philosophy in mind, it’s wise to hold the best types of mutual funds that tend to lead the market in the late phase of the business cycle.

Keeping in mind the shifting market and economic currents, while shoring up portfolio structure with solid core holdings, we offer up these 10 best Vanguard funds to hold in 2017:

Best Vanguard Funds for 2017: Vanguard Mid-Cap Index Fund (VIMSX)

Expenses: 0.20%, or $20 for every $10,000 invested
Minimum Initial Investment: $3,000

Late-cycle trends can keep a lid on growth potential for the conventional large-cap core holdings. Therefore, low-cost mid-cap funds like Vanguard Mid-Cap Index Fund (MUTF:VIMSX) can be a smart alternative core holding choice for 2017.

Most of the the largest companies in the U.S. are sprawling multinationals that generate a high percentage of revenues overseas. When the dollar is higher in relation to other currencies, profits of these companies take a hit as earnings in foreign currencies are translated into a stronger U.S. dollar.

Not to mention, mid-cap stocks typically are referred to as the “sweet spot” of the market, boasting the best risk-adjusted returns compared to their large- and small-cap peers.

So rather than use conventional core holdings like Vanguard 500 Index Fund (MUTF:VFINX), Vanguard investors are smart to gain exposure to mid-cap stocks like VIMSX top holdings Ross Stores, Inc. (NASDAQ:ROST), Equinix Inc (NASDAQ:EQIX) and Nvidia Corporation (NASDAQ:NVDA).

Learn more about VIMSX here.

Best Vanguard Funds for 2017: Vanguard Growth Index Fund (VIGRX)

Expenses: 0.22%
Minimum Initial Investment: $3,000

If you’re looking for a pure growth play to bet on the bull market run to continue through 2017, and you do prefer the relative stability of larger-cap stocks, Vanguard Growth Index Fund (MUTF:VIGRX) is one of the best Vanguard funds to hold.

The VIGRX portfolio holds stocks of large U.S. companies that tend to grow at a faster rate than broader market indices. In a late-cycle growth economy, you’ll want exposure to holdings such as Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL) and Amazon.com, Inc. (NASDAQ:AMZN) — this Vanguard fund’s top three holdings.

The portfolio is light on financials and energy, which were leaders in the fourth quarter of 2016,. That’s why VIGRX lagged the S&P 500 in the post-election Trump rally. But 2017 should look better for the fund as sector rotation comes back to traditional growth sectors like technology.

Learn more about VIGRX here.

Best Vanguard Funds for 2017: Vanguard Global Equity Fund (VHGEX)

Expenses: 0.57%
Minimum Initial Investment: $3,000

If you’re looking to diversify overseas in 2017, an outstanding world stock fund like Vanguard Global Equity Fund (MUTF:VHGEX) can be a smart choice.

Currency fluctuations around the world will make international investing a challenge in 2017. Plus, we’ve already seen the tumult that Trump’s presidency might cause, with Chinese and Mexican stocks both selling off hard immediately after the election.

Therefore, spreading the risk around the world may be your best bet for the foreseeable future.

VHGEX has a roughly half-and-half distribution between the U.S. and the rest of the world. So while you get stocks such as Amazon and Alphabet, you also get foreign stocks including Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) and South Korea’s Samsung (OTCMKTS:SSNLF).

Learn more about VHGEX here.

Best Vanguard Funds for 2017: Vanguard Energy Fund (VGENX)

Expenses: 0.37%
Minimum Initial Investment: $3,000

The economy will be fully in the late cycle of the business phase during 2017, which means sectors tied to raw materials will be expected to outperform.

Plus, there’s the big story from the end of 2016 — OPEC and other oil-producing countries agreeing to a historic agreement to cut oil output.

This makes mutual funds like Vanguard Energy Fund (MUTF:VGENX) outstanding choices now.

Energy prices have seen a significant turnaround in 2016 and look to continue their momentum through 2017. A healthy U.S. economy and moderating oil production should also hold support for price appreciation among VGENX top holdings such as Exxon Mobil Corporation (NYSE:XOM), Pioneer Natural Resources (NYSE:PXD) and Chevron Corporation (NYSE:CVX).

It’s still too early to tell if the incoming Trump administration will positively impact oil prices for the longer haul, but smart investors won’t bet against that scenario.

Learn more about VGENX here.

Best Vanguard Funds for 2017: Vanguard Health Care Fund (VGHCX)

Expenses: 0.36%
Minimum Initial Investment: $3,000

Healthcare has historically been another a market leader in the late-cycle phase of the business cycle, and Vanguard Health Care Fund (MUTF:VGHCX) is one of the best mutual funds to buy to cover the health sector.

The sector had a rough go of things in 2016, but the combination of depressed prices, improved prospects for a brighter 2017 and the defensive nature of healthcare makes VGHCX a smart sector buy for coming year and beyond.

And again, there’s a Trump connection here. His victory kept out Hillary Clinton, who was vocal in her campaign (and earlier) about reform on things such as drug pricing, which held back the biotech and pharmaceutical sectors.

The VGHCX portfolio holds U.S. stocks and overseas companies alike. But it’s comprised primarily of large-cap healthcare stocks, including UnitedHealth Group Inc (NYSE:UNH), Bristol-Myers Squibb Co (NYSE:BMY) and Allergan plc (NYSE:AGN).

Learn more about VGHCX here.

Best Vanguard Funds for 2017: Vanguard Precious Metals and Mining Fund (VGPMX)

Expenses: 0.35%
Minimum Initial Investment: $3,000

Gold and other precious metals will be a smart diversification tool in 2017, especially if and when the Trump rally and larger bull market begin losing steam.

Vanguard Precious Metals and Mining Fund (MUTF:VGPMX) is one of the best funds to fill this important portfolio space.

VGPMX is not a pure gold or precious metals fund, but instead invests solely within the precious metals and mining industries. Thus, top holdings aren’t bullion or coins, but miners such as Barrick Gold Corporation (USA) (NYSE:ABX), Nevsun Resources (USA) (NYSEMKT:NSU) and Agnico Eagle Mines Ltd (USA) (NYSE:AEM). This exposure to miners can actually provide more “oomph” than investing directly in gold, as miners tend to move more dramatically to commodity pricing shifts than the price of the commodity itself.

The outlook for gold and precious metals in 2017 will likely be mixed with weakness to start off the year as risk-on appetite increases. But VGPMX can be a smart buy now with low relative prices and the eventual return to risk-off mode when investors get nervous about high equity valuations.

Learn more about VGPMX here.

Best Vanguard Funds for 2017: Vanguard Balanced Index Fund (VBINX)

Best Vanguard Funds for 2017: Vanguard Balanced Index Fund (VBINX)
Source: Pixabay

Expenses: 0.22%
Minimum Initial Investment: $3,000

Investors needing an all-in-one fund for 2017 would be smart to hold a balanced fund like Vanguard Balanced Index (MUTF:VBINX), which, while “balanced,” does lean more toward stocks than bonds.

The VBINX portfolio consists of roughly 60% U.S. large-cap stocks like Apple, Alphabet and Microsoft Corporation (NASDAQ:MSFT), and 40% bonds. And that bond blend is heavy in Treasuries, as well as mortgage-backed and industrial corporates. This moderate allocation will benefit from a bull market for stocks extending into 2017, but the bond exposure will help minimize volatility (which is almost certain to return by or before mid-year).

The passive nature of the fund also reduces manager risk in an environment where active management can be challenging.

Learn more about VBINX here.

Best Vanguard Funds for 2017: Vanguard Short-Term Bond Index Fund (VBISX)

Expenses: 0.16%
Minimum Initial Investment: $3,000

If you need a low-cost bond fund that can minimize interest rate risk in 2017, one of the best Vanguard funds to hold is Vanguard Short-Term Bond Index (MUTF:VBISX).

When interest rates are on the rise — like they are now as we head into 2017 — bond prices fall. Therefore, investors needing to fill their fixed-income space with a bond fund now will want to avoid bond funds with relatively high interest-rate sensitivity, such as long-term bond funds and zero-coupon bond funds.

For example, the Pimco 25+ Year Zero Coupon U.S. Treasury Index (NYSEARCA:ZROZ) was down more than 16% for the three months ending mid-December 2016, whereas VBISX was down just about 1.5%.

Once investors get a handle on interest rate expectations for 2017 and bond price volatility stabilizes, bond funds should see positive returns again. But short-term bonds will continue to be a good idea for the year.

Learn more about VBISX here.

Best Vanguard Funds for 2017: Vanguard Inflation-Protected Securities Fund (VIPSX)

Best Vanguard Funds for 2017: Vanguard Inflation-Protected Securities Fund (VIPSX)
Source: Pixabay

Expenses: 0.2%
Minimum Initial Investment: $3,000

Now that inflation is returning to the U.S. economic picture, a low-cost TIPS fund like Vanguard Inflation-Protected Securities (MUTF:VIPSX) makes a smart addition to the fixed-income portion of your portfolio.

The rate and velocity of inflation is difficult to forecast, but as far as the threat of increasing prices for goods and services go, 2017 might be at more risk than the past few years.

The best time to invest in Treasury Inflation-Protected Securities, known as TIPS, is when inflation is tame but has a real possibility of increasing more than expected.

Even if inflation remains in check and grows modestly as the Federal Reserve expects, a solid TIPS fund like VIPSX is a great diversification tool for a diversified portfolio.

Learn more about VIPSX here.

Best Vanguard Funds for 2017: Vanguard High-Yield Corporate Fund (VWEHX)

Expenses: 0.23%
Minimum Initial Investment: $3,000

Investors looking for yield will be well-served in 2017 by Vanguard High-Yield Corporate Fund (MUTF:VWEHX).

In an environment where investors are increasingly comfortable with market risk and turning away from the relative safety of lower-yielding bond funds, high-yield funds like VWEHX can do well.

The strengths of VWEHX should prove to be beneficial in 2017. The fund has an active approach with experienced management; its portfolio does focus on junk bonds, but not the bottom-of-the-barrel, low-credit quality issues. The fund yields a touch more than 5%, and it has a rock-bottom expense ratio to boot.

Learn more about VWEHX here.

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


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/10-best-vanguard-funds-for-2017/.

©2017 InvestorPlace Media, LLC