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7 Best Vanguard Funds for the Return of Volatility

The best time to begin planning for volatility is when the market is calm. Start with this list of stalwart Vanguard funds.

By Kent Thune, InvestorPlace Contributor

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stock market volatility

Source: Craig Lloyd via Flickr (Modified)

Volatility has come to a screeching halt, you say? Sure. But while volatility admittedly is at multiyear lows, stocks are trading at all-time highs just as summer seasonality is fast approaching. Translation: Now is a good time to start looking for the best Vanguard funds for a volatile market, which could be lurking just around the corner.

7 Best Vanguard Funds for the Return of Market VolatilityWhy Vanguard funds for volatility?

The vast majority of mutual fund investors are of the long-term variety, and “time in the market” is a smarter bet than “timing the market” for superior returns in the long run.

Just as important, Vanguard’s broad selection of low-cost funds with simple, diversified portfolios are a good fit for almost any investor looking to minimize volatility.

Vanguard doesn’t offer funds with complex trading strategies, such as put options and futures contracts; therefore, investors can play it smart and minimize risk through diversification rather than taking more market risk to hedge it away.

With those points in mind, here are the seven best Vanguard funds for a volatile market.

Best Vanguard Funds for a Volatile Market: Vanguard Global Minimum Volatility (VMVFX)

Best Vanguard Funds for a Volatile Market: Vanguard Global Minimum Volatility (VMVFX)
Source: Shutterstock

Expenses: 0.25%, or $25 annually for every $10,000 invested
Minimum Initial Investment: $3,000

Investors looking to minimize risk through diversification in stocks of companies around the globe can consider holding Vanguard Global Minimum Volatility (MUTF:VMVFX).

VMVFX diversifies its holdings by investing in U.S. stocks and non-U.S. stocks that the fund management believes possess lower risk characteristics than relative market indices. The global allocation is 59% U.S. stocks, with the remainder in the Pacific (17%), Europe (16%), emerging markets (8%) and the Middle East (trace).

Top holdings in the portfolio are stocks in the mid- to large-cap range, so companies like RenaissanceRe Holdings Ltd. (NYSE:RNR), Waste Management, Inc. (NYSE:WM), and HDFC Bank Limited (ADR) (NYSE:HDB), although the fund also holds small caps.

Investors should keep in mind that, although VMVFX will typically outperform the average global fund in a down market, the fund will typically underperform in a rising market.

Best Vanguard Funds for a Volatile Market: Vanguard Balanced Index (VBINX)

Best Vanguard Funds for a Volatile Market: Vanguard Balanced Index (VBINX)
Source: Shutterstock

Expenses: 0.19%
Minimum Initial Investment: $3,000

Simple, low-cost funds that hold a broadly diversified balance of stocks and bonds are a smart way for investors to minimize risk in a volatile market. One of the best funds to do this job is Vanguard Balanced Index (MUTF:VBINX).

The VBINX portfolio consists of approximately 60% stocks and 40% bonds, with each portion tracking an index. The stock side includes large-cap stocks like Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG, GOOGL) and Microsoft Corporation (NASDAQ:MSFT). It’s as stability-minded as you could want, with a median market cap of nearly $60 billion.

The fixed-income portion consists primarily of government and high-quality corporate debt, averaging intermediate-term.

VBINX can work as a standalone fund for investors with a moderate risk tolerance, or it can work as a core holding in a portfolio with other funds.

Best Vanguard Funds for a Volatile Market: Vanguard Tax-Managed Balanced (VTMFX)

municipal bonds
Source: Shutterstock

Expenses: 0.09%
Minimum Initial Investment: $10,000

Investors with taxable accounts can minimize taxes and volatility at the same time through tax-efficient diversification with funds like Vanguard Tax-Managed Balanced (MUTF:VTMFX).

VTMFX balances risk by allocating about 50% of fund assets to stocks and the other 50% to municipal bonds, which are exempt from federal income tax. Although the top stock holdings are mega-caps like Apple, Microsoft and Alphabet, and the median market cap leans even bigger at more than $70 billion, the fund also includes mid-cap stocks for some added diversification. They also provide lower dividend payments (relative to large caps), minimizing the tax hit.

So with VTMFX, investors get a rare combination of low expenses, broad diversification, and tax-efficiency. That’s a smart blend for volatile times.

Best Vanguard Funds for a Volatile Market: Vanguard Wellesley Income (VWINX)

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

Perhaps the most reliable mutual fund type to minimize volatility is a conservative allocation fund. Vanguard Wellesley Income (MUTF:VWINX) is that, and one of the best Vanguard funds on the market period.

The VWINX portfolio consists of roughly one-third stocks and two-thirds bonds, which makes it more conservative than most balanced funds. The portfolio blend currently results in a yield of about 2.7%.

The stocks are mostly quality large-caps like Microsoft, JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC). In fact, you could consider it mega-cap, with an average stock size of roughly $125 billion. The fixed-income side includes nearly 1,000 bonds that are investment-grade quality or higher.

One word of caution about VWINX: Its heavy bond allocation can pull performance below category averages when stock prices and interest rates are both rising.

Best Vanguard Funds for a Volatile Market: Vanguard Wellington (VWELX)

Balance
Source: Pixabay

Expenses: 0.25%
Minimum Initial Investment: $3,000

Investors looking for a low-cost moderate allocation balanced fund that’s also actively managed probably won’t find better than Vanguard Wellington (MUTF:VWELX).

On the surface, VWELX looks like almost any top-notch balanced fund. But this fund’s distinctive quality is that it’s the oldest mutual fund in the Vanguard lineup.

In fact, it’s the oldest balanced fund on the market.

VWELX has an asset allocation of approximately two-thirds stocks and one-third bonds. Like the majority of the best balanced funds, the top equity holdings are high-quality stocks like MSFT, JPM and Chevron (NYSE:CVX). This fund skews heavily toward financials, at about a quarter of the fund.

The bonds cover the spectrum of fixed income, but the average quality is investment-grade and the average duration is intermediate-term.

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

gold
Source: Shutterstock

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

When the market turns volatile, the investor herd often turns to the perceived safety of physical assets like gold. The Vanguard mutual fund to take advantage of this potential opportunity is Vanguard Precious Metals and Mining (MUTF:VGPMX).

Although VGPMX does not invest directly in gold or other precious metals, it does hold stocks of stocks — such as Franco Nevada Corp (NYSE:FNV), Barrick Gold Corp (USA) (NYSE:ABX) — and Newmont Mining Corp (NYSE:NEM) — that are involved in the precious metals mining industries.

Funds that are exposed to gold and other precious metals can be good diversification tools, which is to say that an allocation of 5% to 10% in a portfolio can be smart, but larger allocations can create excessive market risk for an investor.

Best Vanguard Funds for a Volatile Market: Vanguard Total Stock Market Index (VTSMX)

total stock market
Source: Shutterstock

Expenses: 0.15%
Minimum Initial Investment: $3,000

If you’re looking for broad diversification to spread out risk, one of the best mutual funds on the market today is Vanguard Total Stock Market Index (MUTF:VTSMX).

VTSMX provides exposure to more than 3,500 stocks spread across a broad range of equity sectors and market caps. And the rock-bottom expense ratio of 0.15% is a cheap way to capture the performance of the total U.S. stock market while keeping market risk to reasonable levels.

Although most of the top holdings in VTSMX are large-caps like Microsoft, JPM and Chevron, the fund’s exposure to mid- and small caps makes it a bit higher in market risk compared to pure large-cap index like the S&P 500. However, as investors learned the hard way in the 2008 market meltdown, bear markets can hit the big boys harder than their smaller brethren.

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. Under no circumstances does this information represent a recommendation to buy or sell securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/7-best-vanguard-funds-for-market-volatility/.

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