There are many beginning investors out there. That’s okay, because we all have to begin somewhere. Some investors just want to find a reasonable place to invest their money and forget about it. Others are looking for a place to park funds for a while as they work out their risk-adjusted diversified long-term strategy.
That latter is what my stock advisory newsletter, The Liberty Portfolio, aims for.
For many investors, going with the tried-and-true offerings of the Vanguard Group is a nice, conservative way to invest money. If you’re looking for that approach, you could do worse. It is by no means a complete strategy, though.
Still, if you are looking for three time-tested Vanguard funds that won’t keep you up at night, try these:
Expense Ratio: 0.33%, or $33 annually per $10,000 invested
The first of these Vanguard Funds is Vanguard Windsor II Fund (MUTF:VWNFX). This is a large-cap value fund, holding nearly 300 stocks with a median market cap of $91 billion.
The value approach is generally better suited for those unaccustomed to risk. It requires patience, but value stocks outperform growth stocks in the long run.
It is broadly diversified, with 10% in consumer discretionary, 9% in staples, 10% in energy, 20% in financials, 16% in healthcare, 10% in industrials, 19% in IT and the rest spread around other sectors. All the big names you know well are in this fund, like Microsoft Corporation (NASDAQ:MSFT), Citigroup Inc (NYSE:C), and Pfizer Inc. (NYSE:PFE).
The fund is too closely correlated to the benchmarks, for my taste, and non-correlated assets are the key to reducing risk, but it’s difficult not to have at least one fund like this in your portfolio. The expense ratio is also a low 0.33%, and it has an average annual return of 10.75% since its 1985 inception.
Expense Ratio: 0.06%
The second of my suggested Vanguard Funds is the Vanguard Small-Cap Index Fund (MUTF:VSMAX).
Small caps are my favorite sector, because they contain many undiscovered companies that can often return multiples of your initial investment over time, because they have longer and further to grow. They have also outperformed large caps over time.
Many of the companies are relative unknowns. The fund is extremely well-diversified with over 1400 holdings. They are concentrated a bit more in financials (25%), industrials (21%), consumer services (11%) and healthcare (10%), with another 11% in tech.
But that’s where you find these up-and-comers.
The fund has an average annual return since its 2000 inception of 9.24%, but the real joy here is that the fund is practically free to invest in — a mere 0.06% expense ratio is all there is.
Expense Ratio: 0.37%
The final choice from the Vanguard Funds is a legendary fund — the Vanguard Health Care fund (MUTF:VGHCX). There’s no better description of how the fund operates than its own prospectus:
“Biopharmaceutical innovation, an aging population, and growth from developing markets make the health care sector an attractive longer-term investment. Offsetting these powerful tailwinds is the issue of the affordability of health care, which has raised the bar from both a regulatory and a reimbursement standpoint. Because of this, it’s more crucial than ever that we stay true to our disciplined investment process and seek companies dedicated to groundbreaking innovation or the provision of value—that is, high- quality health care at a lower cost.”
There’s one other thing to add, which is that healthcare is an essential part of the human experience. No matter how the politics work out, healthcare will be available and consumed by millions. It is a sector involving repeat purchase and innovation.
The fund carries 75 holdings, many of which you have heard of over the years, with a 45% concentration in pharmaceuticals. Since its 1984 inception, it has returned a remarkable 16.48% on an average annual basis. Despite its many advantages, Vanguard keeps the expense ratio at a very low 0.37%.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance, and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.