When it comes to using funds in retirement portfolios, be they exchange-traded funds (ETFs), index funds or mutual funds, one of the most important factors investors need to consider is costs. After all, planning for and investing in retirement often means having a long-term time horizon and that means reducing fees is a viable way of increasing returns.
Considering the importance of fund fees for long-term investors, it is not surprising that Vanguard is one of the largest asset managers in the world and growing by leaps and bounds on an almost daily basis.
“The average Vanguard mutual fund and ETF (exchange-traded fund) expense ratio is 81% less than the industry average,” according to the fund issuer.
Cost-conscious investors looking to bolster their retirement portfolios can consider the following funds, which include ETFs and mutual funds.
Vanguard Funds to Buy: Vanguard Wellesley Income (VWINX)
Expense Ratio: 0.22%, or $22 annually on a $10,000 investment
The Vanguard Wellesley Income (MUTF:VWINX) is what is known as a conservative allocation fund. Mix that with an expense ratio that makes this Vanguard fund less expensive than nearly three-quarters of rival funds, and VWINX is an ideal retirement planning tool. Rivals to VWINX typically feature larger equity allocations, but this Vanguard fund takes a different approach.
“Balanced funds typically offer a higher allocation to stocks; however, this fund is unique in allocating about one-third to stocks and two-thirds to bonds,” according to Vanguard.
Currently, about 59% of VWINX’s roster is allocated to fixed income instruments, essentially all of which carry investment-grade ratings. Equity holdings include Microsoft Corporation (NASDAQ:MSFT), JPMorgan Chase & Co. (NYSE:JPM) and Pfizer Inc. (NYSE:PFE). VWINX requires a minimum investment of $3,000.
Vanguard Funds to Buy: Vanguard Target Retirement 2050 Fund (VFIFX)
Expense Ratio: 0.15%
As highlighted by 2050 being in the name of this fund, the Vanguard Target Retirement 2050 Fund Investor Shares (MUTF:VFIFX) is what is known as a target date fund, meaning this product liquidates in the year 2050. Vanguard notes this fund is suitable for investors that are eyeing retirement between 2048 and 2052.
One of the useful things about target-date funds like VFIFX is that these funds help retirement planners deal with equity/fixed income allocation conundrum. With each passing year, VFIFX reduces equity exposure while increasing its allocation to bonds.
With 2050 being a long way off, VFIFX currently devotes almost 90% of its weight to stocks. Costs are kept low because all four of VFIFX’s holdings are other Vanguard index funds.
Vanguard Funds to Buy: Vanguard Dividend Appreciation Index Fund Admiral Shares (VDADX)
Expense Ratio: 0.08%
Income takes on added importance in retirement. Plus, dividend stocks can help reduce volatility, another important retirement planning consideration. The Vanguard Dividend Appreciation Index Fund Admiral Shares (MUTF:VDADX) focuses on stocks displaying favorable dividend growth traits.
This Vanguard index fund tracks a benchmark that requires its components to have payout increase streaks of at least 10 years, but many of VDADX’s 177 holdings have dividend increase streaks that can be measured in multiple decades. Over a third of VDADX’s holdings are industrial stocks.
Top 10 holdings in this Vanguard fund include Microsoft, Johnson & Johnson (NYSE:JNJ) and 3M Co (NYSE:MMM).
Vanguard Funds to Buy: Vanguard Total Corporate Bond ETF (VTC)
Expense Ratio: 0.07%
Just a few months old, the Vanguard Total Corporate Bond ETF (NASDAQ:VTC) is the newest Vanguard bond ETF. As an ETF, there is no minimum associated with VTC, but this Vanguard ETF keeps with the firm’s tradition of low costs. With an annual fee of 0.07%, VTC is cheaper than 93% of corporate bond funds.
One of the reasons VTC is able to offer investors one of the lowest fees among corporate bond funds is the fund of funds strategy. In other words, VTC’s holdings are Vanguard’s other corporate bond ETFs — the Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH), Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ:VCIT) and Vanguard Long-Term Corporate Bond ETF (NASDAQ:VCLT).
“The ETF of ETFs structure enables the fund to immediately access more than 5,500 U.S. corporate bonds by taking advantage of the existing exposure and scale offered by the underlying ETFs,” according to Vanguard.
VTC had just $40 million in assets under management at the end of January, but it is probably just a matter of time before it becomes another Vanguard bond behemoth.
Vanguard Funds to Buy: Vanguard LifeStrategy Conservative Growth (VSCGX)
Expense Ratio: 0.12%
The Vanguard LifeStrategy Conservative Growth Fund Investor Shares (MUTF:VSCGX) requires a minimum investment of $3,000. This Vanguard fund is well-suited for conservative retirees because it follows the popular 60/40 investment model, meaning it devotes 60% of its weight to bonds and 40% to stocks. Some of those holdings are international stocks and bonds.
Although this is a conservative strategy, VSCGX has returned an average of 7%-per-year since inception in 1994, according to issuer data.
As is the case with several of the other Vanguard funds highlighted here, VSCGX keeps costs low by using a portfolio comprised entirely of other Vanguard index funds. VSCGX yields 2%.
Vanguard Funds to Buy: Vanguard Managed Payout Fund (VPGDX)
Expense Ratio: 0.34%
For the retirement investor looking for steady income, the Vanguard Managed Payout Fund Investor Shares (MUTF:VPGDX) is a fund to consider due to its monthly payouts. The rub with this Vanguard fund is that it requires a minimum investment of $25,000.
VPGDX probably is not the fund for younger investors planning for retirement. Rather, this fund is suited for current retirees looking to supplement other income sources. This Vanguard fund is not designed to top the S&P 500 or another popular equity benchmark. Rather, its primary goals are 4% annual distributions, capital preservation and keeping pace with or beating inflation.
VPGDX allocates about three-quarters of its weight to stocks and bonds, but alternative investments and commodities are also found in this fund. Nine of the fund’s top 10 holdings are other Vanguard products.
Vanguard Funds to Buy: Vanguard Consumer Staples ETF (VDC)
Expense Ratio: 0.10%
The Vanguard Consumer Staples ETF (NYSEARCA:VDC) is one of the largest consumer staples ETFs and also one of the least expensive. Currently, only one competing consumer staples ETF carries a lower expense ratio than the 0.10% found on VDC.
Income investors often favor consumer staples stocks for the above-average yields and lower volatility than broader benchmark’s. VDC’s trailing 12-month dividend of 2.53% is more than 60 basis points above the S&P 500 and this Vanguard fund has been less volatile than the U.S. equity benchmark over the past three years.
The consumer staples sector is scuffling to start 2018 with VDC down 6%, so this could be a buy-on-the-dip candidate. Risks to the bullish thesis for VDC or any consumer staples fund include rising U.S. interest rates and the potential of a U.S. dollar rebound, which would sap earnings for staples giants that generate significant portions of their sales overseas.
As of this writing, Todd Shriber did not own any of the aforementioned securities.