7 Vanguard Index Funds for a Complete Portfolio

If you want to build a complete portfolio of mutual funds, look no further than Vanguard

By Kent Thune, InvestorPlace Contributor

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Vanguard index funds have long been at the forefront of passive investing and are favorites among the buy-and-hold community for building long-term portfolios.

In terms of assets, two of Vanguard’s funds, Vanguard Total Stock Market Index (MUTF:VTSMX) and Vanguard Total Bond Market Index (MUTF:VBMFX), are respectively the largest stock fund and bond fund in the investment universe.

When investors say they want to build a “set-it-and-forget-it” portfolio or a “lazy” portfolio, they look to Vanguard’s broad selection of dirt-cheap mutual funds to do the building.

There are many ways to construct a portfolio but a timeless approach is to use a core and satellite structure, which consists of one or two core holdings that receive the highest allocations and usually three to five satellite holdings that receive smaller allocations.

With that backdrop in mind, here are seven Vanguard index funds to build a complete portfolio:

Vanguard 500 Index (VFINX)

Expenses: 0.14%
Minimum Investment: $3,000

To get your portfolio started with Vanguard index funds, there’s arguably no better choice than Vanguard’s flagship index fund, Vanguard 500 Index (MUTF:VFINX).

Although many investors and advisors might argue that the Total Stock Market fund is a better choice for a core holding because of its broader diversity, VFINX is a smart choice for investors building a portfolio to include several funds.

Since VFINX only includes roughly the top U.S. stocks by market cap, such as top holdings Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Amazon (NASDAQ:AMZN), investors can build around this fund with another fund that holds small- and mid-cap stocks.

Vanguard Extended Market Index (VEXMX)

Expenses: 0.21%
Minimum Investment: $3,000

A perfect compliment to VFINX is Vanguard Extended Market Index (MUTF:VEXMX), which will complete your exposure to the U.S. stock market.

VEXMX tracks the S&P Completion Index, which includes small- and mid-cap U.S. stocks. Together with Vanguard’s S&P 500 Index fund, an investor will capture the entire U.S. stock market. Since VEXMX provides more exposure to small- and mid-cap stocks than a total stock fund would provide, it introduces a combination of higher potential long-term returns and greater diversity to a portfolio.

Top holdings for VEXMX include Tesla (NASDAQ:TSLA), ServiceNow (NYSE:NOW), and Worldpay (NYSE:WP).

Vanguard Total Bond Market Index (VBMFX)

Expenses: 0.15%
Minimum Investment: $3,000

Arguably the best mutual fund to buy for a fixed-income core holding, Vanguard Total Bond Market Index (MUTF:VBMFX) is an outstanding way to get cheap exposure to the entire U.S. bond market.

VBMFX tracks the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which includes over 8,500 U.S. bonds across the spectrum of short-, intermediate-, and long-term in duration, and multiple categories of bonds, including corporate, municipal and U.S. Treasury issues.

With such broad exposure to the bond market, combined with the low expenses of just 0.15%, it’s no wonder that VBMFX is the largest bond fund in the world, as measured by assets under management.

Vanguard Total International Bond Market Index (VTIBX)

Expenses: 13%
Minimum Investment: $3,000

For complete exposure to the bond market outside of the U.S., Vanguard Total International Bond Market Index (MUTF:VTIBX) is the best mutual fund to get the job done.

If you’ve already covered the U.S. bond market with Vanguard’s Total Bond Index fund, VTIBX is an outstanding compliment to diversify your portfolio.

VTIBX tracks the Barclays Global Aggregate ex-USD Float Adjusted Index, which includes international government, agency, and corporate securities. Most of the bonds are from developed countries but there also some bonds from emerging markets countries included in the fund’s mix.

Vanguard Total International Stock Market Index (VGTSX)

Expenses: 0.17%
Minimum Investment: $3,000

To cover the stock market outside of the U.S., you can get the job done with just one Vanguard index fund — Vanguard Total International Stock Market Index (MUTF:VGTSX).

VGTSX tracks the FTSE Global All Cap ex US Index, which includes about 6,400 non-U.S. stocks from developed and emerging markets countries.

This international stock index fund does cover the full range of market capitalization; however, it is cap-weighted, which means the top holdings are large-cap stocks, such as Royal Dutch Shell (NYSE:RDS.A), Nestle (OTCMKTS:NSRGY) and Tencent Holdings (OTCMKTS:TCEHY).

Vanguard FTSE Social Index (VFTSX)

Expenses: 0.2%
Minimum Investment: $3,000

If you’re looking for alternative equity core holding or a compliment to your existing stock funds, Vanguard FTSE Social Index (MUTF:VFTSX) is a good choice, especially for the socially conscious investor.

On the market since 2000, VFTSX tracks the FTSE4Good US Select Index, which includes over 400 mid- and large-cap U.S. stocks like AAPL, MSFT and AMZN.

Investors who may be attracted to VFTSX are those that want to buy stocks of companies that have been screened for certain social, human rights and environmental criteria.  However, VFTSX can be attractive to all investors for its low expenses and long-term returns that have historically outpaced the broader stock market indices.

Vanguard Real Estate Index (VGSIX)

Expenses: 0.26%
Minimum Investment: $3,000

To add diversity to a portfolio, a quality sector fund like Vanguard Real Estate Index (MUTF:VGSIX) is a smart choice.

Stocks in the real estate sector as a whole do not have a high correlation, in terms of price movement, to the major market indices, such as the S&P 500 Index. This makes VGSIX a good satellite holding in a diversified portfolio.

VGSIX tracks the MSCI US Investable Market Real Estate 25/50 Index, which includes 184 holdings, most of which are REITs like American Tower Corp (NYSE:AMT), Simon Property Group (NYSE:SPG) and Crown Castle International (NYSE:CCI).

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


Article printed from InvestorPlace Media, https://investorplace.com/2018/10/7-vanguard-index-funds-for-a-complete-portfolio/.

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