The Vanguard Group is a behemoth, with a staggering $4.4 trillion in assets under management. This puts the firm as the No. 2 player in the asset management world, just behind BlackRock, Inc. (NYSE:BLK).
Consider that Vanguard has 370 mutual funds and exchange-traded funds (ETFs). There are also 15,000 employees as well as offices that span 17 countries.
A key to the success has been the mission to provide low costs for investors. Vanguard’s founder, John Bogle, has noted: “The grim irony of investing is that we investors as a group not only don’t get what we pay for, we get precisely what we don’t pay for.”
In fact, according to Morningstar, Vanguard’s costs are 81% lower than the industry average. This is in part due to the massive scale of the firm, but also the focus on index funds, which often do not require high-paid portfolio managers and analysts.
OK then, so what are the best Vanguard funds to buy? Well, let’s take a look at ten, which should help you achieve your financial goals:
Expense Ratio: 0.17%, or $17 annually per $10,000 invested
The Vanguard Dividend Appreciation Index Fund Investor Shares (MUTF:VDAIX) fund is focused on U.S. companies that have a consistent history of raising dividend payouts (this is part of the Nasdaq U.S. Dividend Achievers Select Index).
All in all, the strategy has worked quite well. During the past five years, the average rate of return was about 13.2%.
The VDAIX fund, which has $32 billion in assets, sports an expense ratio of 0.17% and a yield of 1.84%.
Expense Ratio: 0.14%
The Vanguard 500 Index Fund Investor Shares (MUTF:VFINX) fund is the flagship for Vanguard. Consider that it has a whopping $367.5 billion in assets under management.
By tracking the S&P 500, an investor gets sufficient coverage of larger companies in the US. What’s more, the fund’s low expense ratio — at 0.14% — means that most of the returns go to the holders. There is also a low turnover of 4%, which means that you will likely not suffer notable tax hits.
And finally, the VFINX fund has an attractive yield, at 1.82%.
Expense Ratio: 0.22%
The Vanguard Wellesley® Income Fund Investor Shares (MUTF:VWINX) fund takes a very conservative approach to investing. Note that the fund has been around for over 40 years.
The strategy is to invest in both high-quality stocks and investment-grade bonds, which allow for steadier returns.
Although, unlike many funds of this type, the allocation for stocks is relatively low — at a third of the portfolio. As a result, a large portion of the returns of the VWINX fund comes from dividends and interest. During the past decade, the average gains have come to 6.97%.
The expense ratio is currently at 0.22% and the yield is 2.67%.
Expense Ratio: 0.46%
While small caps can be risky, they also hold the potential for standout gains, especially over the long-run. Just look at the performances of companies like Oracle Corporation (NYSE:ORCL), MSFT, and Cisco Systems, Inc. (NASDAQ:CSCO) during their early years.
Well, for investors to play small caps, there the Vanguard Explorer Fund Investor Class (MUTF:VEXPX) fund. It invests in U.S.-based companies that target various industries (the portfolio holds roughly 600 stocks). As for the performance, the average return is about 15.01% for the past five years.
VEXPX has an expense ratio of 0.46% and has $13 billion in assets under management.
Expense Ratio: 0.15%
As the name implies, the Vanguard Total Bond Market Index Fund Investor Shares (MUTF:VBMFX) provides broad exposure to the bond markets.
The portfolio, which has over 8,000 bond securities, includes 30% corporates and 70% government issues. They also range from short-term to long-term.
Now the yield is fairly modest, at 2.35%. But this should not be a surprise since the fund takes a conservative approach to investing. In other words, it should be able to weather extreme market conditions.
Expense Ratio: 0.18%
International markets can provide diversification and the potential for stronger returns. And yes, Vanguard has a pretty good option: the Vanguard Total International Stock Index Fund Investor Shares (MUTF:VGTSX) fund, which has $315.6 billion in assets.
Keep in mind that foreign funds generally have high expense ratios. Yet this is not the case with the VGTSX offering. The expense ratio is a mere 0.18%.
The fund has exposure to equities in over 40 countries and the holdings tend to be large caps, such as Nestle SA (ADR) (OTCMKTS:NSRGY), Royal Dutch Shell plc (ADR) (NYSE:RDS.A, NYSE:RDS.B) and Toyota Motor Corp (ADR) (NYSE:TM).
Expense Ratio: 0.26%
Real estate offers various advantages. This investment can be a nice source of stable income but also allow for protection against inflation.
As for Vanguard, there is the following option: the Vanguard REIT Index Fund Investor Shares (MUTF:VGSIX) fund, which has $63 billion in assets under management. The fund invests in Real Estate Investment Trusts (REIT) that cover areas like office buildings, hotels and apartments.
The yield is also attractive, currently at 3.8%, and the expense ratio is 0.26%. Some of the top holdings include Simon Property Group Inc (NYSE:SPG), Boston Properties, Inc. (NYSE:BXP) and Vornado Realty Trust (NYSE:VNO).
Expense Ratio: 0.16%
A target retirement fund is a one-size-fits-all investment. For example, the Vanguard Target Retirement 2050 Fund Investor Shares (MUTF:VFIFX) fund is geared for those who plan to retire by 2050 (this is the date you will reach 65).
In other words, the fund will make the kinds of investment allocations to get the best results. Often, this means being more aggressive — such as with stocks — in the early years and then focusing on more conservative approaches as you get near retirement age.
Currently the VFIFX fund invests in some of Vanguard’s top-rated funds to buy, which have 90% in stocks and the rest in bonds. The expense ratio is also 0.16%.
Keep in mind that Vanguard’s target funds have five-year increments, which go from 2015 to 2065.
Expense Ratio: 0.23%
The Vanguard U.S. Value Fund Investor Shares (MUTF:VUVLX) fund looks for undervalued stocks. The strategy involves identifying securities with price-to-earnings ratios that are lower than the market average.
The VUVLX fund also has an expense ratio of 0.23% and a yield of 1.92%.
Expense Ratio: 0.41%
Another interesting international fund is the Vanguard International Explorer Fund Investor Shares (MUTF:VINEX) offering, which has $4 billion in assets under management.
The focus is primarily on small companies that have the potential for strong growth. For the most part, the target markets are in Europe and the Pacific region.
As for the expense ratio, it’s a reasonable 0.41%. The fund also has a yield of 1.45%.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.