The 7 Best Vanguard Funds for 2018

Perhaps the most challenging part of choosing the best Vanguard funds for 2018 is narrowing down their outstanding selection of mutual funds to just a handful of top picks.

2018 could be the most difficult year for investors to navigate in the past decade. With stocks at record highs, valuations above the historical mean and interest rates rising, prices for equities could see a volatile year as positive sentiment and recent momentum hits a wall of uncertainty.

Will 2018 be another year of double-digit gains or could it mark the beginning of a new bear market? Or might the year be a tale of two markets, where the first half is positive and the second half turns negative?

No matter the outcome, fans of Vanguard funds are typically long-term investors that may consider short-term tactical moves but the focus still remains on long-term performance. It is with that backdrop that I share the best Vanguard funds for 2018:

Best Vanguard Funds for 2018: Vanguard 500 Index (VFINX)

Type: Broad Index (Stocks)
Expenses: 0.14%, or $14 annually for every $10,000 invested
Minimum Initial Investment: $3,000

2018 may go down in investment history as a year for diversification and one of the best Vanguard funds to diversify your portfolio is Vanguard 500 Index (MUTF:VFINX).

Although its close relative, Vanguard Total Stock Market Index (MUTF:VTSMX), is more broadly diversified than VFINX, the exposure to small- and mid-cap stocks will likely drag on performance in 2018, which would make VFINX the better choice for a broad index fund in the coming year.

In a year that could easily shift to risk-off mode, you’ll want to use a core holding like VFINX that concentrates only on U.S. large-cap stocks, like those found in the S&P 500 index. That means top holdings such as Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT).

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Best Vanguard Funds for 2018: Vanguard Wellesley Income (VWINX)

Type: Balanced (Conservative)
Expenses: 0.22%
Minimum Initial Investment: $3,000

If you’re looking for a high-quality conservative balanced fund, you may not find better than Vanguard Wellesley Income (MUTF:VWINX).

VWINX can make a solid core holding for a diversified portfolio or it can be a standalone investment for investors seeking income. If 2018 brings volatility, it’s diverse blend of high-quality stocks and bonds will serve as a protective balance.

The asset allocation starts with roughly one-third dividend stocks, such as MSFT, JPMorgan Chase & Co (NYSE:JPM) and Philip Morris International (NYSE:PM) and the other two-thirds is allocated primarily to bonds.

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Best Vanguard Funds for 2018: Vanguard International Explorer (VINEX)

Type: International (Small/Mid)
Expenses: 0.41%
Minimum Initial Investment: $3,000

If 2018 is a repeat of 2017 for international stocks, Vanguard International Explorer (MUTF:VINEX) will be a standout.

VINEX has two distinctive features that can give it an edge over Vanguard’s international index funds: 1) It’s exposure to small- and mid-cap stocks, and 2) Active management with a track record of strong performance.

Investing in smaller non-U.S. companies makes it more aggressive than the large-cap international index funds but this also means greater potential gains in the current foreign market environment.

The portfolio manager, Matthew Dobbs of Wellington Management, has been at the helm of VINEX since 2000 and has been consistent in beating category peers.

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Best Vanguard Funds for 2018: Vanguard Energy (VGENX)

Type: Sector (Energy)
Expenses: 0.41%
Minimum Initial Investment: $3,000

Although energy was the worst-performing sector of 2017, it’s turnaround in the 4th quarter shows promise for a turnaround in 2018 and this makes funds like Vanguard Energy (MUTF:VGENX) smart holdings now.

The turnaround for energy stock prices comes primarily from consensus among OPEC members to cut production through March 2018. A combination of lower relative supply and higher demand from healthier world economies could continue to boost the energy sector.

This outlook for energy in 2018 could be positive for VGENX top holdings like Exxon Mobil Corporation(NYSE:XOM) and Chevron Corporation (NYSE:CVX).

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Best Vanguard Funds for 2018: Vanguard Health (VGHCX)

Type: Sector (Health)
Expenses: 0.37%
Minimum Initial Investment: $3,000

Among the top sectors in 2017, healthcare looks to be the smartest play in 2018 and this makes funds like Vanguard Health Care (MUTF:VGHCX) among the best sector funds to hold now.

The VGHCX portfolio allocates only about 15% of assets to the more aggressive, high flying biotech stocks and concentrates primarily on the high-quality blue chips of health like fund holdings Bristol-Myers Squibb Co (NYSE:BMY), UnitedHealth Group (NYSE:UNH), and AstraZeneca (NYSE:AZN).

This measured approach may be just what the doctor ordered in 2018, where a balance of caution and smart allocation could win.

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Best Vanguard Funds for 2018: Vanguard Total Bond Market Index (VBMFX)

Type: Broad Index
Expenses: 0.15%
Minimum Initial Investment: $3,000

For the same reason that broad market stock index funds can be smart moves in 2018, index funds like Vanguard Total Bond Market Index (MUTF:VBMFX) are smart in the bond realm.

Interest rates are expected to continue rising in 2018, which places downward pressure on bond prices. However, the bond market is not predictable and a passive fund could be your best bet in that environment.

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.

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Best Vanguard Funds for 2018: Vanguard Inflation-Protected Securities (VIPSX)

Type: Bonds (TIPS)
Expenses: 0.20%
Minimum Initial Investment: $3,000

The economic environment in 2018 looks good for TIPS, which makes Vanguard Inflation-Protected Securities (MUTF:VIPSX) one of the best bond funds to buy now.

A good strategy for buying TIPS, and the mutual funds that hold them, is when inflation is relatively low but expected to pick up during the holding period. Judging by the yield on the 10-year Treasury bond, the expectation for inflation over the next decade is expected to be below the historic average of 3%. However, it’s arguable that inflation won’t remain that tame for that long.

Bond funds like VIPSX can also be smart long-term holdings, which is another compelling reason to buy shares in 2018.

As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although some of his client accounts hold VWINX, VIPSX and VBMFX. Under no circumstances does this information represent a recommendation to buy or sell securities.

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