Vanguard funds are much like buy-and-hold investing because there is a great selection of high-quality, low-cost mutual funds and ETFs. These features make Vanguard funds ideal choices for long-term investors.
Vanguard offers about 209 U.S. funds (including variable annuity portfolios) and about 232 additional funds and ETFs in markets outside the United States, as of Jan. 31, 2021.
Pros and Cons of Vanguard Mutual Funds
There are some pros and cons when it comes to investing in mutual funds from Vanguard, but this is the case with any mutual fund company.
Vanguard's low-cost index funds are designed to replicate the performance of a particular market index (i.e. S&P 500).
Bond funds may provide better diversification.
International stock funds could provide even more diversification.
You must decide whether you're in it for the long term or the short term to make good fund choices.
Vanguard's large number of funds requires research before choosing.
Some funds have minimum investment requirements.
Vanguard has dozens of funds to choose from. You'll have to spend some time researching them to find the best for your personal finance needs.
This list can help you get started with your Vanguard fund review. It narrows the selection to the 10 best funds to hold for the long term.
Are You a Long-Term Investor?
Decide whether you're a long-term investor before buying Vanguard funds.
You could hear 10 different explanations about what "long-term" means if you talk with 10 different financial planners. You'd be long-term if you have at least 10 years before you'd need to begin withdrawing from your accounts. This also holds true for long-term bonds and long-term bond funds.
Saving for a new car is not long-term investing. You should look for the best funds for short-term investments in that case.
Retired investors make a common mistake by thinking of themselves as "short-term." They might be making withdrawals to bolster their retirement income, but they may easily have a life expectancy of at least 10 more years. The average life expectancy in the U.S. is almost 79 years.
You'd still have 13 years to invest if you were to retire at age 65. Depending on your sources of income and your overall financial picture, you'll need to invest at least a portion of your retirement assets in long-term investments, which can include stock mutual funds.
Choosing the Right Funds for Your Needs
The best long-term investments generally consist of stock mutual funds, especially index funds.
Stock mutual funds may be a good choice if you have at least three years before starting withdrawals.
Index funds also make smart choices for long-term investing. Vanguard's index funds are among the top choices for long-term investors. They've attracted such a large amount of assets that Vanguard has become the largest mutual fund company in the world.
Vanguard index funds make smart choices for long-term investing because index funds are passively managed. They have lower expense ratios than actively managed funds. They also offer a long-term edge for performance, because their expense ratios are so low. This happens because most active fund managers don't beat the major market indexes for periods longer than 10 years.
You might as well invest in funds that match the market at a lower cost rather than try to beat the market. Beating the market is very hard to do consistently over the long run.
10 Best Vanguard Funds for Long-Term Investing
Now that you know which fund types work best for the long term, these are the 10 best Vanguard funds to buy and hold, in no particular order.
1. Vanguard Total Stock Market Index (VTSAX)
Vanguard's VTSAX is the largest mutual fund in the world. It's a diversified stock index fund. Its expenses are very low. The portfolio provides exposure to the entire U.S. stock market, including small-, mid-, and large-cap stocks. This mix includes over 3,500 securities. The expenses are only 0.04% or $4 for every $10,000 invested. The minimum initial investment is $3,000 for Admiral Shares.
Vanguard's VTSAX are available as Vanguard Total Stock Market ETF (VTI), with a 0.03% expense ratio.
VWINX is a balanced fund from Vanguard. It holds a conservative (low-risk) allocation of about 40% stocks and 60% bonds. VWINX can be the right choice for long-term investors with a somewhat low tolerance for risk or retired investors looking for both income and growth. Expenses for VWINX are very low for an actively managed fund at .23%. The minimum initial investment is $3,000.
This index fund tracks the S&P 500, so it holds about 500 of the largest U.S. stocks. VFIAX shareholders get exposure to stocks like Apple (AAPL), Meta (FB), formerly Facebook, Amazon (AMZN), and Alphabet (GOOG, GOOGL), the parent company of Google.
VFIAX is a smart choice for building a portfolio that includes other stock funds, such as small- and mid-cap funds. The expense ratio for VFIAX is 0.04%. The minimum initial investment is $3,000.
VFIAX is also available as Vanguard S&P 500 ETF (VOO), with a 0.03% expense ratio.
Long-term investing is often associated with stocks, but most investors will need to have a portion of their portfolios invested in bonds.
VBTLX is a smart choice for the same reason as most other index funds. They're well-diversified, and they're low-cost. The VBTLX portfolio consists of more than 9,000 U.S. government and corporate bonds. The expense ratio for VBTLX is 0.05%. The minimum initial investment is $3,000.
VBTLX is also available as an ETF: Vanguard Total Bond Market ETF (BND) with an expense ratio of 0.035%.
You may have noticed that you'll need $3,000 to start investing in funds, but VGSTX has a lower minimum of just $1,000. It's also a "fund of funds," which means that it invests in other mutual funds, all in one fund option.
The STAR fund invests in a diversified mix of 11 Vanguard funds, making it a solid option for beginning investors or those who want a single fund solution. The expense ratio is 0.31%, but Vanguard claims that it's still 62% lower than funds with similar holdings.
Most investors will include international stock funds to build a complete long-term portfolio. VTIAX is one of the best Vanguard funds for this purpose.
VTIAX tracks an index that includes over 6,000 non-U.S. stocks. It includes both developed markets (Europe and Japan) and emerging markets (China, India, and Brazil). Shareholders can gain exposure to the entire stock market outside the U.S. for a low expense ratio of just 0.11%. The minimum initial investment is $3,000.
Investors can also pick up the index at one-share costs, like Vanguard Total International Stock ETF (VXUS), with a lower expense ratio of 0.08%.
Investors who are willing to take more risk in exchange for higher returns than the broad market indexes can take a look at VIGAX. This index fund holds large-cap growth stocks that have historically outperformed the S&P 500, especially for periods of 10 years or more. Expenses for VIGAX are 0.05%. The minimum initial investment is $3,000.
VIGAX is also available as Vanguard Growth ETF (VUG) with a 0.04% expense ratio.
Vanguard has a small but very nice selection of balanced funds—mutual funds or ETFs that invest in stocks and bonds. VBINX has a moderate (medium risk) allocation of about 60% stocks and 40% bonds. The stock portion invests in a total stock index. The bond portion invests in a total bond index. The expenses are 0.07%. The minimum initial investment is $3,000.
Historically, small- and mid-cap stocks have performed better than large-cap stocks in the long run, but mid-cap stocks can be the wisest choice of the three. Although mid-cap stocks generally have a higher market risk, they typically have a lower risk than small caps.
Investors often consider mid-caps to be the sweet spot of investing, because of their returns in relation to risk. VIMAX has a low expense ratio of 0.05%. The minimum initial investment is $3,000.
The same blend is also available as Vanguard Mid-Cap ETF (VO), with a 0.04% expense ratio.
10. Vanguard Target Retirement Funds
There are several Vanguard Target Retirement Funds to choose from. Some investors are wise to consider this unique investment type. As the name suggests, the strategy of these funds is geared toward the target retirement year that is specific to the fund.
For example, Vanguard Target Retirement 2040 (VFORX) has an asset allocation of about 81% stocks and 19% bonds, which is about right for an investor who will be retiring near the year 2040.
Vanguard's Target Retirement Funds are good choices for investors who want to buy and hold one mutual fund until retirement. Some planners call these "set-it-and-forget-it" funds because you don't need to build a portfolio of funds or manage a portfolio.
Frequently Asked Questions (FAQs)
What are the best Vanguard funds for retirees?
Retirees will likely have a larger emphasis on capital preservation and current income than a younger person. For younger retirees who don't mind taking on some risk, that could mean the best fund would be a balanced (VBIAX) or income (VWINX) fund. Older retirees or those relying on their retirement accounts for income may prefer a bond fund (VBTLX) or a target-date mutual fund with a target date that's just a few years out.
Which Vanguard mutual fund will have the best capital gains?
It's impossible to predict the future, but you can have a good idea of which funds are more likely to experience gains. In general, the more stocks in a fund, the higher the potential for capital gains. If you're comparing two stock funds, then you will have a higher probability of capital gains with growth or small-cap funds than with dividend or blue-chip funds. Keep in mind that the opportunity for capital gains also exposes you to the potential for capital losses.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.