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These Are the Only 5 Funds You’ll Ever Need

Vanguard admiral funds, investor shares and ETFs cover all your bases

By Jeff Reeves, Executive Editor of InvestorPlace.com

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Exchange-traded fund (ETF) investing has undeniably revolutionized the way Wall Street works. But depending on your strategy, that could be a good or a bad thing.

These Are the Only 5 Funds You’ll Ever NeedLiving in an age of ever-growing investment options sometimes means there’s a lot of noise to sort through. Most investors don’t care about learning everything about the stock market or alternative assets, after all. They only want to learn about what’s right for them.

It’s crucial to have a basic investing knowledge to identify those strategies that work. But a basic understanding doesn’t necessarily require weeks of research or expensive sessions with a financial advisor.

In fact, while there are thousands of ETFs and just as many mutual funds out there, you really can narrow the universe down to five high-quality investments from index fund giant Vanguard Group, Inc. And then, based on your risk tolerance or desire for diversification, you can allocate your cash accordingly across this small family of funds.

These top Vanguard funds come in three different forms — “Admiral” mutual funds for investors with lots of cash, “Investor” mutual funds for investors with less of a nest egg, and “exchange-traded” funds that you can buy with a brokerage account with no minimums whatsoever.

But the underlying portfolio and strategy is exactly the same across all of them even if the ticker symbols vary and expenses are slightly cheaper on “Admiral” funds. Don’t worry for a second you’re getting inferior investments just because you don’t have as much cash in your account.

Let’s dive in and you’ll see how easy it is to take the guesswork out of investing, with these five options that are quite possibly the only funds you’ll ever need to own.

Click to Get Fund #1 – Small Caps

Vanguard Small-Cap Index Fund

Funds to Own: Vanguard Small-Cap Index Fund

  • What This Fund Does: Provide exposure to smaller but fast-moving stocks
  • Risk: High
  • Average return over the last five years: 7.8%
  • Admiral Shares: VSMAX, 0.06% expense ratio with $10,000 minimum investment
  • Investor Shares: NAESX, 0.18% expense ratio with $3,000 minimum investment
  • ETF: VB, 0.06% expense ratio and exchange-traded

For investors looking to play the stock market, the allure of small and fast-growing companies is where the excitement is. Sure, big companies often make the biggest headlines … but wouldn’t it be nicer to invest in those dominant businesses while they are still start-ups?

That’s what this Vanguard Small-Cap Index Fund does. “Small-cap” means small capitalization — specifically, companies that fall in the bottom 15% of publicly traded corporations as measured by size. Right now, for instance, holdings include companies such as meal delivery service Blue Apron Holdings Inc (NYSE:APRN), valued at about $1 billion, or fashion retailer Francesca’s Holdings Corp (NASDAQ:FRAN) that is valued at only about $300 million.

There is obviously more risk in smaller companies that aren’t as well funded or established. But if you get in on the ground floor, the gains can be very impressive.

Click to Get Fund #2 – International Stocks

Vanguard Total International Stock Index Fund

Vanguard Total International Stock Index Fund

  • What This Fund Does: Provide exposure to international stocks
  • Risk: Moderate
  • Average return over the last five years: 7.6%
  • Admiral Shares: VTIAX, 0.11% expense ratio with $10,000 minimum investment
  • Investor Shares: VGTSX, 0.18% expense ratio with $3,000 minimum investment
  • ETF: VXUS, 0.11% expense ratio and exchange-traded

Total international is the total package for anyone looking for global exposure. With big-name overseas stocks including Nestle SA (ADR) (OTCMKTS:NSRGY), Samsung Electronics (OTCMKTS:SSNLF) and Royal Dutch Shell Plc (ADR) (NYSE:RDS.A), you get a share of every large cap that exists outside the United States.

The fund is pretty balanced, too, with nearly 20% of its assets in emerging markets to provide growth beyond just the core picks most investors would recognize.

But keep in mind the appeal is also zero exposure to domestic names — making it a great option for investors seeking diversification even if they don’t want to go all-in overseas.

Click to Get Fund #3 – Dividend Stocks

Vanguard Dividend Appreciation Index Fund

Vanguard Dividend Appreciation Index fund

  • What This Fund Does: Provide exposure to large, dividend-paying stocks
  • Risk: Moderate
  • Average return over the last five years: 12.6%*
  • Admiral Shares: VDADX, 0.08% expense ratio with $10,000 minimum investment
  • Investor Shares: VDAIX, 0.17% expense ratio with $3,000 minimum investment
  • ETF: VIG, 0.08% expense ratio and exchange-traded

The Vanguard Dividend Appreciation Index fund tracks a group of U.S. corporations that have high-quality operations. And investors know that these companies are reliable because these stocks provide profit sharing with shareholders through the form of regular dividends.

That makes this index fund a kind of half step between stocks and bonds. You get exposure to the stock market, yes, but you also get reliable income from these dividends to the tune of about 1.9% annually.

And that’s on top of any potential market return as share prices move higher over time.

Of course, share prices can also move down much faster than bonds. But with stable names in the portfolio including Microsoft Corporation (NASDAQ:MSFT) and Johnson & Johnson (NYSE:JNJ), it’s hard to imagine any of the holdings going bankrupt even if they see short-term troubles during a downturn.

* Note that the fund was formed only in 2013. This is performance of the strategies benchmark, the NASDAQ US Dividend Achievers Select index.

Click to Get Fund #4 – Bond Fund

Vanguard Total Bond Market Index Fund

Vanguard Total Bond Market Index

  • What This Fund Does: Provide exposure to high-quality bonds
  • Risk: Low
  • Average return over the last five years: 2.1%
  • Admiral Shares: VBTLX, 0.05% expense ratio with $10,000 minimum investment
  • Investor Shares: VBMFX, 0.15% expense ratio with $3,000 minimum investment
  • ETF: BND, 0.05% expense ratio and exchange-traded

If you’re looking for broad exposure to “investment grade” bonds, this is your one-stop shop. High-quality government bonds like U.S. Treasuries are held along with trustworthy loans to top corporations from General Electric Company (NYSE:GE) to Anheuser-Busch InBev NV (ADR) (NYSE:BUD).

Just like a high-quality consumer looking for a mortgage, these entities need money but are more than capable of paying it back. And to add to the stability of this fund, government bonds represent almost two-thirds of the Vanguard Total Bond Market portfolio. This provides an incredibly stable foundation for investors.

Sure, the returns aren’t that great because a low-interest-rate environment is keeping down the yield on bonds. But investors in this fund are seeking safety, not necessarily the potential for huge gains.

Click to get Fund #5 – CD-Like Stability

Vanguard Prime Money Market Fund

Vanguard Prime Money Market Fund

  • What This Fund Does: Provide small but effectively guaranteed returns, like a CD
  • Risk: Very Low
  • Average return over the last five years: 0.2%
  • Admiral Shares: VMRXX, 0.1% expense ratio with $5,000,000 minimum investment
  • Investor Shares: VMMXX, 0.16% expense ratio with $3,000 minimum investment
  • ETF: None.

A money market fund doesn’t provide much in the way of returns, but it is quite literally the safest investment Vanguard offers. The share price is set at $1 and Vanguard promises to preserve that share price of $1 — you don’t get lower risk than that!

Of course, Vanguard doesn’t give you much in return. The Prime Money Market Fund has consistently delivered less than 1% every year.

And there are expenses charged even if they are small — $10 annually on $10,000 invested (0.1%) for Admiral shares and $16 annually (0.16%) on Investor shares.

Younger or more aggressive investors may not want this option in their portfolio. But if you’re at or near retirement, or simply risk-averse and looking for something like a CD that preserves your cash above all else, this is it.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/vanguard-admiral-funds-etf-investing/.

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