7 Vanguard Funds to Build an All-Weather Portfolio

Vanguard funds can help portfolios be simple, low-cost and diversified

By Kent Thune, InvestorPlace Contributor

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If you want to build a low-cost, diversified portfolio that can withstand short-term market fluctuations while offering potential for superior long-term results, look no further than Vanguard funds.

7 Vanguard Funds to Build an All-Weather Portfolio
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Vanguard funds cover a lot of ground in terms of diverse categories, but nothing that is highly speculative or too complex for the everyday investor to understand and to use to build a solid portfolio.

In different words, the best mutual fund portfolios are often those that are simple, diverse and low-cost. Although the asset allocation and specific investment allocation will vary according to each individual investor’s unique objectives and risk tolerance, most investors can build a complete portfolio with a mix of three to 10 mutual funds.

When using several funds, a smart portfolio structure is the core-satellite approach, which is just as it sounds: You start with a core holding, which receives that largest allocation percentage, then build around the core with satellite funds.

With that backdrop, here are the seven best Vanguard funds to build an all-weather portfolio:

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard 500 Index (VFINX)

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard 500 Index (VFINX)

Expenses: 0.14%, or $14 annually for every $10,000 invested
Minimum Initial Investment: $3,000

The best portfolios begin with a solid core holding and Vanguard 500 Index (MUTF:VFINX) is an outstanding mutual fund from which to build upon.

Some investors like to use a broader stock index fund, such as Vanguard Total Stock Market Index (MUTF:VTSMX), for a core holding, but I like VFINX because it’s a pure large-cap stock play, rather than a large-cap-heavy fund with some mid- and small-cap in the mix.

This means you’ll start the portfolio with about 500 large-caps like Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT). Then you can control how you want to allocate the mid- and small-caps with separate funds.

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard Mid-Cap Index (VIMSX)

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard Mid-Cap Index (VIMSX)

Expenses: 0.18%
Minimum Initial Investment: $3,000

To build upon the large-cap core, continue down the capitalization range and cover the U.S. mid-cap stock allocation with Vanguard Mid-Cap Index Fund (MUTF:VIMSX).

VIMSX tracks the CRSP US Mid Cap Index, which consists of about 350 mid-cap stocks that are a mix of both the growth and value styles. Top holdings include mid-sized companies like Equinix, Inc. (NASDAQ:EQIX), Electronic Arts Inc. (NASDAQ:EA), and Western Digital Corp (NASDAQ:WDC).

VIMSX can be used as a core holding, as an alternative to a large-cap index fund, for aggressive long-term investors.

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard Small-Cap Index (NAESX)

Next Page Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard Small-Cap Index (NAESX)

Expenses: 0.18%
Minimum Initial Investment: $3,000

To complement the large- and mid-cap index funds in your portfolio, the U.S. equity market coverage will be complete with Vanguard Small-Cap Index (MUTF:NAESX).

Although a portfolio consisting only of index funds isn’t necessary, holding a passively managed small-cap index fund can be especially important, especially for diversification reasons. This is because actively managed small-cap funds tend to hold at least a portion of assets in mid-cap stocks or even continue to drift in style until they become mid-cap funds.

NAESX will always remain a pure small-cap fund because it tracks a small-cap index, which covers about 1,400 small-caps like Align Technology, Inc. (NASDAQ:ALGN), CDW Corp (NASDAQ:CDW) and Packaging Corp of America (NYSE:PKG).

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard Total International Stock Index (VGTSX)

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard Total International Stock Index (VGTSX)

Expenses: 0.18%
Minimum Initial Investment: $3,000

To diversify your portfolio with non-U.S. stocks, all you’ll need is Vanguard Total International Stock Index (MUTF:VGTSX).

As I pointed out in a recent feature on Vanguard international funds, academic research has long revealed that investors generally have better performance results over time when international stocks are part of the portfolio.

VGTSX passively tracks the FTSE Global All Cap ex US Index, which covers the entire global equity market outside the United States, by holding over 6,000 international stocks.

Most of the portfolio leans toward international large-caps like Nestle (OTCMKTS:NSRGF), Samsung (OTCMKTS:SSNLF) and Royal Dutch Shell (OTCMKTS:RYDBF).

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard Health Care (VGHCX)

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard Health Care (VGHCX)

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

Health sector funds can serve a dual purpose of defensive play and long-term performance enhancer and Vanguard Health Care (MUTF:VGHCX) is one of the best in this category.

On the defensive side, health stocks tend to fare better than the broader market during corrections. As for long-term performance, health stocks have been a market leader because of an aging baby-boom generation and increased demand for health services, pharmaceuticals and medical devices.

The VGHCX portfolio covers a diversified blend of health stocks, most of which are large-caps like Bristol-Myers Squibb Co (NYSE:BMY), Allergan Plc (NYSE:AGN) and UnitedHealth Group Inc (NYES:UNH).

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard Precious Metals and Mining (VGPMX)

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard Precious Metals and Mining (VGPMX)

Expenses: 0.43%
Minimum Initial Investment: $3,000

Investments in gold, other precious metals and related industries tend to have low correlation with the equity market, which makes Vanguard Precious Metals and Mining (MUTF:VGPMX) a smart diversification tool.

Although VGPMX is not a direct investment in precious metals like gold and silver, it does invest in companies involved in the metals and mining industry, such as top holdings Franco Nevada Corp (NYSE:FNV), Agnico Eagle Mines Ltd (USA) (NYSE:AEM) and Newmont Mining Corp (NYSE:NEM).

For most investors, a small allocation of 5% to 10% is appropriate for sector funds and precious metals funds.

Best Vanguard Funds to Build an All-Weather Portfolio: Vanguard Total Bond Market Index (VBMFX)

Vanguard FTSE Emerging Markets ETF (VWO): The Quick Guide to VWO

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

For the fixed income portion of a diversified portfolio, Vanguard Total Bond Market (MUTF:VBMFX) is all most investors need.

VBMFX tracks the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which covers the entire U.S. bond market, including more than 8,500 fixed-income securities.

Average duration of the bonds is about six years and most of the holdings have credit ratings above investment-grade.

As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. However, he holds VGHCX AND VBMFX in some client accounts. Under no circumstances does this information represent a recommendation to buy or sell securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/vanguard-funds-vfinx-vimsx-naesx-vgtsx-vghcx-vgpmx-vbmfx/.

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