Investing in Vanguard index funds is one of the top choices for investors to buy and hold.
The financial institution set out to shake up the investing industry with index fund investing when it was founded over forty years ago by John C. Bogle. And they did just that!
But in addition to the groundbreaking index funds, Vanguard has some of the best funds when it comes to the low-cost and diversification.
Thus, giving investors better exposure in the markets and higher returns.
Below is a list of some of the best Vanguard index funds you might want to buy now for your own portfolio.
Best Vanguard Index Funds
- Vanguard Total Stock Market Index Fund (VTSAX)
- Vanguard 500 Index Fund Admiral Shares (VFIAX)
- Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
- Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
- Vanguard Real Estate Index Fund Admiral Shares (VGSLX)
- Vanguard Growth Index Fund Admiral Shares (VIGAX)
- Vanguard Balanced Index Fund Admiral Shares (VBIAX)
- Vanguard Dividend Growth Fund (VDIGX)
- Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX)
- Vanguard Target Retirement Funds
The Pros and Cons of Vanguard Index Funds
While I’m a big fan of Vanguard and index funds, no single investment will be perfect. So as you can imagine, there are also pros and cons to Vanguard index funds too.
Ultimately, investing in index funds and with Vanguard will be based on your own investing goals and risk tolerance.
The Pros of Vanguard Index Funds
Lower risk and more diversification:
With each index fund, there are a collection of hundreds (or thousands) of stocks, bonds, or sometimes both pending the fund.
And if a single stock or bond in the “index” is not performing well at the moment, there’s a good chance that another within the fund is doing well which minimizes and balances potential losses.
Low-cost fees for index funds:
This was always an important one to me, was keeping the fees low. Since Vanguard was the leader in very low fund fees, many other brokerage companies have recently lowered their fees to compete.
But all index funds within Vanguard have professional portfolio managers. However, because index funds are easier to manage there are less expertise and time needed to hand-select stocks or bonds for each fund.
More tax advantages:
Everyone loves tax advantages, am I right?
While you might be using index funds for your retirement accounts that already have tax advantages, you still can get some more potentially.
Index funds are not changing the stock or bond holdings often, compared to many actively managed funds.
And because of that, typically this leads to fewer taxable capital gains distributions and that could reduce your tax bill.
The Cons of Vanguard Index Funds
Tons of index fund choices:
While more options is never a bad thing per se, Vanguard has a plethora of index fund choices to choose from that can make it difficult to know what to pick.
This will require you to do a bit more research and know your goals for investing. Just one reason why I made this list of best Vanguard index funds!
You could also go with the three-fund portfolio as well, which can simplify your investment strategy as well.
Funds have minimum investment requirements:
Any of the index funds from Vanguard have two classes you can choose from: Investor Shares and Admiral Shares.
For investor shares, you are looking at funds that require a minimum investment between $1,000 and $3,000. However, Vanguard does not offer as many in the investor shares category anymore and the ones they do are typically a minimum of $3,000.
And the Admiral Shares typically are $3,000 for most index funds. But you can also find funds at the $50,000 actively managed funds and up to $100,000 for certain specific index funds.
Choosing the Right Vanguard Funds
As you work towards your personal finances, investing your money is going to be key for building a comfortable life and preparing for retirement.
Vanguard index funds are typically great options if you are planning on buying and holding for a fairly long time.
Their funds are perfect for the long-term investor who has an investing horizon of usually 10 years or more. So you’ll want to invest with money you know you do not need in a handful of years.
Since index funds are more passively managed and have lower expenses, they are highly attractive for long-term investors.
And they have continued to perform well and beat most actively managed funds, because the active funds try to beat the major markets and typically fail as more years pass.
It’s why index funds have exploded in popularity and more investors are flocking to these fund types.
However, as I mentioned in the cons section, there are tons of index funds to choose from. Plus, Vanguard has a fairly large catalog to consider, which can be a bit overwhelming.
Below, you’ll find some of the best Vanguard index funds you might want to consider adding to your portfolio.
I’m only going to provide some brief insights into each one, so if you do consider any of these and are unsure, make sure to click to the fund overview to read more.
Best Overall Vanguard Index Funds
So let’s dive into the goods, which is the best Vanguard index funds to buy and hold. These are not listed in a particular order or preference, just ones that offer the best options.
1 . Vanguard Total Stock Market Index Fund (VTSAX)
One of the largest index funds in the world, Vanguard’s total stock market index fund provides exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks.
This fund has over 3,500 stocks, which provides investors low costs, potential tax efficiency, and solid diversification. The current expense ratio or “fee” is 0.04%, which keeps more of your investment money growing for you.
Additionally, the fund typically pays out quarterly dividends for your investment in this fund. The minimum investment is $3,000. Read more about VTSAX here.
2. Vanguard 500 Index Fund Admiral Shares (VFIAX)
Another top option from Vanguard is its 500 Index Fund. This offers exposure to the 500 largest companies in the U.S. and covers various industries.
This fund is similar in a way to the Total Stock Market Index fund, with fees of 0.04% and quarterly dividend payouts.
However, there are way fewer companies in the index and you get a bit less exposure because it only focuses on large-cap companies. The minimum investment is $3,000. Read more about VFIAX here.
3. Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
A solid investment portfolio will have a percentage dedicated to bonds. There are many options for bonds, but a great way to diversify across the bond sector is with a Total Bond Market Index Fund.
This index fund helps you get broad exposure to U.S. bonds, with an investment mix of corporate bonds and U.S. government bonds (short, intermediate, and long-term issues).
You typically find monthly dividend payouts, a safer investment index, and a low fee of 0.05%. The minimum investment is $3,000, Read more about VBTLX here.
4. Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
For a well-balanced and diversified portfolio, you do want to consider some stocks from international companies. However, you also must be careful as there is more risk in international markets.
This Vanguard international fund will help you gain equity exposure to the developed and emerging international economies. So now you are getting a blend of stock markets from all over the world, except the United States.
Like the Total Stock Market index fund, this one pays out quarterly dividends, but the expense ratio is a bit higher at 0.11%. The minimum investment is $3,000. Read more about VTIAX here.
5. Vanguard Real Estate Index Fund Admiral Shares (VGSLX)
Now if you are following the three fund portfolio strategy, then a real estate investment trust index fund is probably not something on your radar.
However, if you are looking for some real estate exposure, the Vanguard Real Estate Index Fund can be a great choice.
This fund includes companies that purchase office buildings, hotels, and various real estate properties. And these REITs tend to perform differently than stocks and bonds, so it can add some additional diversification for you.
The fund may distribute dividend income higher than other funds and the expense ratio is 0.12%. The minimum investment is $3,000. Read more about VGSLX here.
6. Vanguard Growth Index Fund Admiral Shares (VIGAX)
While I don’t personally invest in the Growth Index Fund, it was one I considered in the early days of setting up my investment portfolio.
In this fund, you’ll find stocks of large companies in the United States that tend to grow more quickly than the general market.
However, it does not mean they always will outperform, so there is that risk.
The name of the game in this fund is growth. You’ll find quarterly dividend payouts and an expense ratio of 0.05%. As with most of these funds so far, the minimum investment is $3,000. Read more about VIGAX here.
7. Vanguard Balanced Index Fund Admiral Shares (VBIAX)
Depending on your investing style, a balanced index fund from Vanguard could be an excellent option. The company offers a few balance funds, but VBIAX is one of the top choices.
With this index fund, you’ll get exposure to a mix of stocks and bonds. The fund invests roughly 60% in stocks and 40% in bonds by tracking two indexes that represent the U.S. equity and U.S. taxable bond markets.
The performance results won’t be as high as say a total stock market fund, but you are taking less risk as well.
If you still have a relatively long-term time horizon to invest but still want some growth, this fund might be right for you. The expense ratio is 0.07% and has a minimum of $3,000 to invest. Read more about VBIAX here.
8. Vanguard Dividend Growth Fund (VDIGX)
One way to passively invest is with companies that pay consistent dividends. But also dividends that typically increase over time so your return on investment sees growth.
This fund focuses on top-notch companies that are committed to increasing their dividends over time. The risks here are the fund is all equities and potentially the dividend returns could be lower than the overall stock market.
The Vanguard Dividend Growth Fund has a higher expense ratio than the others on this list at 0.22%, but the same minimum investment of $3,000. Read more about VDIGX here.
9. Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX)
If you are investing extra money in a traditional brokerage account or maybe you are in a higher tax bracket, a Vanguard tax-managed fund can provide more tax efficiency. Now there is no exact guarantee, but a fund like VTMFX can be of good assistance.
This fund provides exposure to the mid-and large-cap segments of the U.S. stock market with about 50% dedicated to that, while the other 50% is invested in tax-exempt municipal bonds.
The overall goal is to track the stock market, but also minimize the taxable dividend income.
Additionally, when the stock market is more volatile, this fund takes less of a hit. There is still potential for losses, but the balance fund helps keep its losses lower.
The tax-managed balanced fund has an expense ratio of 0.09%, but with a higher minimum to get started at $10,000. Read more about VTMFX here.
10. Vanguard Target Retirement Funds
And the last of the best Vanguard index funds are their target retirement funds. The reason there is not one specifically listed here, is they have a fund for major years that you might potentially hit retirement age.
If you do not want to deal with choosing a few index fund types, rebalancing, or figuring out the percentages to invest in — a target retirement fund is a great option.
Based on the retirement fund year you choose, the management will handle the diversification you need, will auto rebalance so you are on track and will alter percentages over time as you get closer to your retirement.
For example, based on my birth year if I chose a target retirement date fund I would select Vanguard Target Retirement 2055 Fund (VFFVX).
This has a 0.15% expense ratio and just a $1,000 minimum to get started. You can learn more here and pick a retirement fund based on your birth year.
Best Vanguard Funds for Retirement
- Vanguard Total Stock Market Index Fund (VTSAX)
- Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
- Vanguard Dividend Growth Fund (VDIGX)
- Vanguard Balanced Index Fund Admiral Shares (VBIAX)
- Vanguard Wellesley Income Fund Investor Shares (VWINX)
- Vanguard LifeStrategy Conservative Growth Fund (VSCGX)
The above depends on where your retirement year may end up at and the risk you want to take. The latter three are better Vanguard funds for retirees as they are more conservative.
Always do your research first and even talk to a Vanguard advisor if you need more help.
What Is the Most Popular Vanguard Fund?
The most popular index fund is Vanguard’s Total Stock Market Index (VTSMX). The reasons for its popularity is the diversity of over 3,500 stocks in the entire U.S. market (small, mid, and large) and the extremely low expenses.
Are Index Funds Good for Retirement?
Index funds are good for retirement because they offer investors a broad diversification, some of the lowest investment fees, and offer some additional tax benefits. These fund types make it easier for investors to buy and hold without trying to constantly beat the markets.
Does Warren Buffett Buy Index Funds?
Warren Buffett often discusses index funds and the value it can have for investors. He tends to state that investors are better off buying index funds rather than single stocks because overtime individuals are typically terrible at picking stocks.
One of the many great Warren Buffett quotes, “If you like spending six to eight hours per week working on investments, do it. If you don’t, then dollar-cost average into index funds.”