Editor’s note: This story was previously published in March 2019. It has since been updated and republished.
If you want your portfolio to hold the best Vanguard funds for 2019, you will want a diverse selection of funds that can perform in an uncertain environment of slowing growth.
The best funds in 2019 will likely include defensive sector funds and high-quality dividend funds. If you want to diversify with bond funds, buying those that focus on short-term debt may be the best bet, if the Federal Reserve resumes raising rates.
Balanced funds can also be a good idea in 2019. With the Fed pausing its tightening campaign, investors at first cheered but may soon turn to fears of a recession. This makes for economic and market conditions that will continue to bring volatility and ultimate downside for stocks — and the potential for bond prices to rise.
In summary, diversification will likely beat narrow bets in 2019. With that backdrop, I give you the best Vanguard funds for 2019:
Vanguard Wellington (VWELX)
Expenses: 0.25%, or $25 for every $10,000 invested
Minimum Investment: $3,000
When uncertainty and volatility abound, long-term investors are wise to diversify with a well-managed, low-cost balanced fund like Vanguard Wellington (MUTF:VWELX).
Although 2018 ended on a negative note for stocks, equities can still have a positive 2019, assuming the current positive GDP forecasts hold. This environment is a good match for a moderate-allocation balanced fund like VWELX, which consists of roughly two-thirds stocks and one-third bonds.
Among its stock holdings are high-quality large-caps like Microsoft (NASDAQ:MSFT), Verizon (NYSE:VZ) and JPMorgan Chase (NYSE:JPM). Bonds are a diversified mix with an average duration of 9.4 years.
Vanguard Wellesley Income (VWINX)
Expenses: 0.23%
Minimum Investment: $3,000
For investors who want to lean to the conservative side in 2019 or retirees who need income but minimal market risk, Vanguard Wellesley Income (MUTF:VWINX) is among the best in the mutual fund universe.
VWINX maintains an allocation of roughly one-third stocks and two-thirds bonds. If stocks enter into a full bear market in 2019, bond prices will likely rise as the Fed continues to pause its tightening campaign and the heavy fixed-income allocation in VWINX will minimize losses.
If you’re looking for income, VWINX boasts a 3.4% 30-day SEC yield, which comes from quality dividend stocks like JPM, VZ and Johnson & Johnson (NYSE:JNJ).
Vanguard High Dividend Yield Index (VHDYX)
Expenses: 0.14%
Minimum Investment: $3,000
In volatile markets, investors often turn to high-quality stocks of dividend-paying companies, like the ones you’ll find in Vanguard High Dividend Yield Index (MUTF:VHDYX).
When investors transition from the riskier growth stocks, small-caps and international stocks, they often turn to big U.S. blue-chip stocks that pay dividends. If stocks have a positive 2019, these quality stocks will be among the leaders, and a passively-managed fund full of them can be a smart move.
VHDYX tracks the FTSE High Dividend Yield Index, which consists of 400 stocks of U.S. companies that pay larger-than-average dividends like JNJ, JPM and Exxon Mobil (NYSE:XOM).
Vanguard Health Care (VGHCX)
Expenses: 0.34%
Minimum Investment: $3,000
In times of uncertainty and market volatility, holding a defensive sector fund, such as Vanguard Health Care (MUTF:VGHCX) can be a smart move for diversifying a portfolio.
Although healthcare stock prices won’t necessarily climb while those of major market indices fall, they do tend to hold their value better than other sectors during corrections. And if stocks are positive in 2019, your health sector fund can still capture that upside.
Another benefit of holding VGHCX in what may be a risk-off environment is that the portfolio is light on the riskier biotechnology stocks. Most of the portfolio consists of managed care and big pharma names like UnitedHealth Group (NYSE:UNH), AstraZeneca (NYSE:AZN) and Bristol-Myers Squibb (NYSE:BMY).
Vanguard Ultra-Short-Term Bond (VUBFX)
Expenses: 0.20%
Minimum Investment: $3,000
If the Fed resumes its rate hikes, one of the best bond funds to hold will be Vanguard Ultra-Short-Term Bond (MUTF:VUBFX).
An ultra-short-term bond fund like VUBFX is a smart choice for investors who want to minimize interest-rate risk or for those looking for opportunities to get greater yields than money market funds.
The reason why short-term bond funds can be smart in a rising-rate environment is that prices for longer maturities fall harder than shorter maturities. This is because bond investors don’t want the older, lower-yielding bonds when the newer, higher-yielding bonds are available.
Vanguard Inflation-Protected Securities (VIPSX)
Expenses: 0.2%
Minimum Investment: $3,000
Bonds prices tend to fall in inflationary environments but a good TIPS fund like Vanguard Inflation-Protected Securities (MUTF:VIPSX) can perform relatively well in such an environment.
Treasury inflation-protected securities, aka TIPS, are Treasury bonds in which the principal value adjusts up or down based on inflation, as measured by the CPI.
While stocks and some bond funds can lose in an inflationary/rising-rate environment, funds like VIPSX can eke out gains. Keep in mind, however, that TIPS funds can still decline in value when rates are rising, although not typically as much as funds that invest in conventional bonds.
Vanguard Prime Money Market (VMMXX)
Expenses: 0.16%
Minimum Investment: $3,000
In an environment where neither stocks nor bonds look attractive, investors are wise to allocate a portion of their portfolio to highly liquid money market Vanguard funds like Vanguard Prime Money Market (MUTF:VMMXX).
Rising rates are not good for equities or fixed income. However, higher rates do generally increase the yields for money market funds. Therefore, a diversified Vanguard portfolio in 2019 will include VMMXX.
VMMXX currently has a compound yield of 2.49% and beat the major indices for both stocks and bonds last year.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he holds VWINX in some client accounts. Under no circumstances does this information represent a recommendation to buy or sell securities.
