If you don’t have the time, the money or the expertise to buy individual stocks or bonds to build your investment portfolio, then consider the best Vanguard index funds.
Index funds are a good way to start saving and investing for retirement.
One reason is because the chance of making more money investing in index funds is far higher than it is investing in individual stocks, especially if you are a beginner investor.
As the master of value investing, Warren Buffett, once said “a low-cost index fund is the most sensible equity investment for the great majority of investors.” “By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals.”
But how do you find and choose among the best Vanguard index funds? Don’t worry, GrowthRapidly can help make your choice easier.
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Index funds vs mutual funds
Index funds are one of the easiest and cheapest ways to invest in the stock market. As opposed to a mutual fund, which is actively managed by a fund manager, index funds are passive.
This means that index funds attempt to track the performance of a particular index, such as the Standard & Poor’s 500 index of 500 large U.S. company stocks or the CRSP US Small Cap Index.
So, when you invest in the Vanguard S&P 500 Index fund (which we’ll discuss in more detail below), you’re essentially buying a piece of the 500 largest publicly traded US companies.
Index funds don’t jump around; they stayed invested in the market. Again, they simply track the performance of the stock index.
Related: What is a mutual fund?
Whereas with a mutual fund, fund managers might make mistake by not being invested when the market goes up or by being too aggressive when the market goes down.
That doesn’t mean mutual funds are not good investments. In fact, they are great investment vehicles. But when it comes to long term investments, index funds are the best. However, these 8 mutual funds are great for long term investing.
Like a mutual fund, you can buy an index fund through a fund company like Vanguard.
The main advantage of a Vanguard index fund is its low-cost, which is usually less than 1% annually. Another benefit of Vanguard index funds is that they are diversified. Like mutual funds, they invest to multiple companies, thus spreading out the risk.
One of the downside with index funds, however, is that they won’t outperform the market they track.
Why choosing the best Vanguard index funds to invest your money?
There are thousands of fund companies (such as Fidelity, Schwab, JP Morgan) where you can buy index funds. Different companies have different experiences and expertise with different type of funds. So, it can be difficult to know which one is the best.
Here are four main factors to consider when looking to buy the best index funds for long term investments:
- The company: Is it a reputable and well-known company with a great track record?
- Fees: Another major factor to consider in picking a fund company is its cost. Excessive fees have a negative effect on your investment return. These fees are deducted from your index fund’s balance every year. Other fees can apply as well. So always find a company with a low fee.
- Reasonable minimum investment: Will you be able to invest with as little as $1000?
- Performance: Although past performance does not guarantee future performance, look for a fund company with a strong record of performing well against its competitors over the short and long term as well.
If you are an intelligent investor who has done his or her research, you will conclude that among the various fund companies out there, Vanguard comes out on top.
Jack Bogle, who recently died and who founded the firm Vanguard Group, invented the index fund in 1976.
Today, Vanguard is one of the World’s biggest and the best investment funds with approximately $5.6 trillion in assets.
Moreover, Vanguard has the best index funds because of their ability to keep their operating fees so low. Vanguard has all types of stock and bond index funds and their fees are the lowest.
The advantages and disadvantages of Vanguard Index funds.
Pros of the best vanguard index funds
By now, you know that an index fund is well diversified. But you might know these two other pros that make Vanguard index funds the best:
- Good return: Vanguard index funds generally delivers a good return because their expenses are relatively low. The average Vanguard Index fund has an expense ratio of 0.2% per year (compare that to the average index fund operating expenses of 1.4% per year.) A 1.2% difference can be a significant difference on your return. Operating expenses are also lower because ongoing research is not needed to identify companies to invest in.
- Tax-friendly: not only Vanguard index funds have lower operating expenses, which help increase your returns, they are also tax-friendlier when you invest outside of retirement accounts. Because a mutual fund is actively managed, they tend to jump around by selling and buying stocks more frequently. By doing that, it increases a fund’s taxable capital gains distribution. Whereas an index fund stays invested and not trying to jump around.
Cons of the best Vanguard index funds
Despite their low costs and tax-friendliness, their minimum investment while seem reasonable, might not be for the beginner investor with little money to invest.
Most Vanguard index funds requires a $3,000 minimum initial investment. Retirement account investors who plan on starting with less might be at a disadvantage.
Moreover, Vanguard has an overwhelming number of index funds to choose from. That can make it tedious for an investor to decide which ones are the best. But that’s why we have compiled the top Vanguard index funds for you.
The 10 Best Vanguard Index Funds to Buy Now:
Now that you know what an index fund is and why investing Vanguard index funds makes good sense, in no particular order, below are 10 of the best Vanguard index funds to add to your investment portfolio.
Vanguard S&P 500 Index Admiral (VFIAX)
Of all the Vanguard index funds in this list, the Vanguard S&P index fund, which tracks the Standard & Poor’s 500, is perhaps the best Vanguard index fund. One reason is that the fund invest in 500 of largest U.S. companies with a few a midsize stocks.
Some of the big name stocks in this index fund includes Apple (AAPL), Microsoft (MSFT), and Google/Alphabet (GOOGL). Another reason to select this fund is that the cost is pretty low, (0.04%) if not the lowest of all the index funds.
Index fund cost is an important factor in choosing an index fund to invest in, because fees are deducted from your balance and thus reduced your rate of returns. The last reason to invest in the VFIAX is because the initial minimum investment is also low ($3,000).
So if you’re looking for an index fund that maintains low operating expenses while enjoying a good rate of return, the Vanguard S&P 500 Index Admiral is for you.
Vanguard Developed Market Stock Index Admiral
For diversification, you should consider in your investment portfolio some index funds that invests in foreign countries. International funds are diversified because they invest in countries around the world. If so, the Vanguard Developed Market Stock Index Admiral fund (VTMGX) is a fine choice.
This Vanguard index fund tracks the performance of the FTSE Developed All Cap ex US Index. It invests in large cap stocks in 24 developed countries. Some of its several blue-chip multinational companies include the Toyota Motor Corp (7203), Royal Dutch Shell (RDS.A.), Nestle SA (NESN), making it one of the best Vanguard index funds.
This index fund has a minimum investment of $3,000 and an expense ratio of 0.07%.
Vanguard Emerging Markets Stock Index Admiral
While Vanguard index funds invested in U.S. stocks tend to perform better than Vanguard index funds invested in emerging markets, emerging markets in Latin America, Asia, and Eastern Europe should not be overlooked.
If you don’t mind investing in emerging economies, consider checking out the Vanguard Emerging Markets Stock Index Admiral (VEMAX), which is currently one of the best Vanguard index funds to buy now.
In fact, some of the big name foreign companies included in this index fund are Alibaba Group Holding Ltd ADR (BABA), Tencent Holdings Ltd (TCEHY), Taiwan Semiconductor Manufacturing Co Ltd (2330.TW), and China Construction Bank Corp Class H (00939).
This investment attempts to track the performance of the FTSE Emerging Markets All Cap China Inclusion Index.
One of the downside of this index fund is that it has an expense ratio of 0.14%, but it still has a low minimum initial investment of $3,000.
Vanguard Total Stock Market Index (VTSAX)
The Vanguard Total Stock Market Index (VTSAX) is one of the best Vanguard index funds. It captures the total market.
That means it gives investors broad exposure to the entire U.S. equity market including large cap, mid cap and small cap growth and value stocks.
Some of the big name companies included in this Vanguard fund are: Facebook, Alphabet, JPMorgan Chase, Apple, and Microsoft.
This Vanguard index fund has an expense ratio of 0.04% and a minimum initial investment of $3,000.
So, if you’re looking for a well diversified Vanguard fund and don’t mind a little volatility, this index fund is for you.
Note that you can purchase this index fund as an ETF as well. It start at the price of one share.
Vanguard Mid-Cap Index Admiral
The Vanguard Mid-Cap Index Admiral fund (VIMAX), which tracks the CRSP U.S. Midcap Index, may be appropriate for you if you have a long term perspective.
That is because the index fund, which consists of midsize and smaller stocks, performs better in the long term rather than the short term, making it one of the best Vanguard index funds to include in your investment portfolio.
The fund targets midsize companies. The minimum investment is $3,000 with an operating expense of 0.05%.
So if you’re looking for a Vanguard index fund to use for retirement investing and you don’t expect to tap into your investment money for 10 years or more, the Vanguard Mid-Cap Index Admiral fund is for you.
Vanguard Small-Cap Index Admiral
The Vanguard Small-Cap Index Admiral (VSMAX), as the name suggests invests in stocks of smaller companies.
This index fund tracks the CRSP U.S. Small Cap Index. Some of its holdings include DocuSign, Inc (DOCU), Leidos Holdings Inc (LDOS), Tyler Technologies, Inc (TDY), Equity Lifestyle Properties, Inc (ELS), etc…
This index fund, just like the Vanguard Mid-Cap Index Admiral fund, tends to perform better in the long term. Therefore, invest in this Vanguard fund if you don’t plan to use your money within the next five years.
So if you’re looking for a broadly diversified index of stocks of small U.S. companies, the Vanguard Small-Cap Index Admiral is a good choice. This index fund has a minimum initial investment of $3,000 and an expense ratio of 0.05%.
Vanguard Short-Term Corporate Index Admiral
If you want to invest in short term bonds to use your money in the next five years to buy a house, or if you plan to withdraw the money from your retirement account, then the Vanguard Short-Term Corporate Index Admiral fund (VSCSX) is for you.
This bond index fund tracks the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index.
While you shouldn’t expect a return of no more than 2 to 3% annually on this bond index fund, corporate bonds in general are safe, and this fund is pretty stable.
Because of this stability, this short-term bond index fund makes it an appropriate investment. The Vanguard Short-Term Corporate Index Admiral has an expense ratio of 0.07% expense and a minimum initial investment of $3000, making it one of the best Vanguard index funds around.
Vanguard High Dividend Yield ETF
The Vanguard High Dividend Yield ETF (VYM), as the name suggests, is a “dividend” fund. It attempts to track the performance of the FTSE High Dividend Yield Index.
This index ETF allows investors to earn dividend through growth companies. Some of the big companies with a strong record of paying dividends are AT&T, Intel, and Exxon Mobil.
As of 2/27/2020, this ETF has an expense ratio of 0.06%, making it one of the best Vanguard index funds for income. It starts at the price of one share.
So, if you’re looking for an index fund with the best long term investments growth potential, and you don’t mind the stock market volatility, this income-focused fund is appropriate for you.
Note that the Vanguard High Dividend Yield is also available as an Admiral share with a minimum investment of $3,000.
Vanguard Information Technology
Vanguard Information Technology Index Fund Admiral Shares (VITAX) is a sector fund. This investment attempts to track the performance of the MSCI US Investable Market/Information Technology 25/50.
Sector funds invest in stocks and/or bonds in specific industries. And the Vanguard Information Technology Index Fund, as the name suggests, focuses only on technology.
Generally, you should avoid sector funds mainly because they lack diversification. However, there is an exception with this Vanguard index fund. It focuses on technology, which makes it one of the best Vanguard funds.
In addition, this index is made up of stocks of large, mid-size, and small U.S. companies within the technology sector.
Nowadays, technology has shaped our daily lives. From computers, TVs, tablets, etc, everything is connected to the internet. Therefore, this means that there is and there will be continued growth in the years ahead.
The top companies included in this Vanguard fund are Apple, Microsoft, Visa, Adobe, PayPal, etc.
This index fund has an expense ratio of 0.10 %, but a minimum investment of $100,000. This can be high for the beginner investor.
However, this Vanguard index fund is available as an ETF, starting at the price of one share.
Vanguard Real Estate
The Vanguard Real Estate Index Fund Admiral Shares (VGSLX) is another sector fund. It focuses on real estate investment trusts (REITs), which are companies that buy office buildings, hotels and other real estate properties.
This Vanguard fund seeks to track the performance of the MSCI US Investable Market Real Estate 25/50 index.
Just as any other sector funds, this Vanguard real estate index fund may lack diversification. So, it makes sense to have this index fund in conjunction with another a more broadly diversified Vanguard fund.
Despite the lack of diversification, however, this fund distributes higher dividend income than other funds, allowing it to be among the best Vanguard index funds for income.
This Vanguard fund has an expense ratio of 0.12%. It has a minimum initial investment of $3,000.
Note that this Vanguard fund is also available as an ETF, starting at the price of one share.
Final tips for buying the best Vanguard index funds
In general, index funds are a good investment vehicle to use. So whether you’re looking to invest money for retirement, or you’re looking to add diversification to your investment portfolio, these Vanguard index funds are a great choice for you. They are great quality funds. They produce superior returns comparing to other similar funds.
Indeed, the best Vanguard Index funds will not only save you money in fees throughout the years. But also, these low-cost index mutual funds and exchange-traded funds (ETFs) will give you a wide exposure to different asset classes.
Speak with the Right Financial Advisor
- If you have questions beyond knowing which of the best Vanguard index funds to invest, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
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