11 Best Vanguard ETFs, Index & Mutual Funds

Vanguard is renowned for its mix of high-quality, low-cost, mostly passively managed mutual funds and exchange-traded funds (ETFs). The association is so profound that devotees of passive index investing are informally known as Bogleheads after Vanguard founder John Bogle. Bogle’s decades of experience as an asset manager and his close reading of work by two mid-20th-century financial academics convinced him the way to beat the market consistently — or more accurately, secure a greater share of its returns over time — was to keep operating expenses and transaction costs as low as possible.

Bogle’s colleagues, virtually all of whom had unshakable faith in the superiority of active investing, greeted his theory with a mixture of skepticism and scorn. But he wasn’t deterred. In 1975, he founded Vanguard and worked for the next 40 years to build the company into a powerhouse with trillions in assets under management.

Along the way, Bogle never deviated from his original mission: keeping more of his clients’ money in the market and out of his fund managers’ hands. According to data compiled by Vanguard, the average Vanguard mutual fund and ETF expense ratio is 82% lower than the industry average today. Over time, the savings add up. Compared with the industry average, Vanguard investors save more than $36,000 in fees over 30 years on an initial investment of just $50,000, according to a Vanguard analysis.

It’s therefore no surprise that Vanguard funds remain top of mind for do-it-yourself investors committed to building diversified portfolios with a mix of low-fee, passively managed mutual funds and ETFs. (For investors with at least $50,000 in investable assets and less comfort with DIY investing, its Vanguard Personal Advisor Services is an affordable alternative to an independent human advisor.)

If you have a tax-advantaged or taxable brokerage account — Vanguard or otherwise — with a self-directed investing option, you likely have access to a range of Vanguard funds. And if your current online stock broker doesn’t offer Vanguard funds, there’s no cost to open a self-directed account with Vanguard.

ETFs vs. Mutual Funds

ETFs behave like stocks — they’re highly liquid, are available for purchase in single-share increments, and trade during market hours on major securities exchanges. Mutual funds are less liquid, though not inordinately so, with orders typically filled on the next trading day. However, mutual funds usually carry purchase minimums — for Vanguard funds, $1,000 to $3,000 is the typical range.

Best Vanguard Funds for Retail Investors

These are among the best Vanguard mutual funds and ETFs for DIY retail investors — those building portfolios without help from a licensed financial advisor.

Each listing notes the instrument’s expense ratio (total operating expenses) and five-year return as of May 31, 2020. Compare these figures to comparable instruments offered by other fund issuers, such as Fidelity and Charles Schwab.

Each listing also notes Vanguard’s proprietary “risk potential” score, which measures the risk of principal loss and growth on a scale of 1 to 5, with 5 being the riskiest. Funds composed primarily of stocks are higher-risk than funds that primarily include bonds and other fixed-income instruments.

1. Total Stock Market ETF

  • Expense Ratio: 0.03%
  • Five-Year Return: 9.17%
  • Risk Potential: 4

The Vanguard Total Stock Market ETF (VTI) is also available as a mutual fund, but the ETF version is a better fit for investors who can’t meet the $3,000 mutual fund minimum. As the name suggests, it’s designed to match the performance of a broad swathe of equities — specifically, the CRSP U.S. Total Market Index, which includes a mix of small-, mid-, and large-cap growth and value stocks.

VTI remains fully invested, meaning it holds minimal cash at any given time and is not insulated from the ups and downs of the market in any way. While that’s not ideal for cautious investors, VTI is a mainstay of more aggressive portfolios seeking exposure to the broader stock market.

2. Total Bond Market ETF

  • Expense Ratio: 0.035%
  • Five-Year Return: 4.02%
  • Risk Potential: 2

The Vanguard Total Bond Market ETF (BND) is VTI’s bond market equivalent. Designed to track the performance of a broad index of taxable investment-grade bonds, it excludes tax-exempt bonds (such as bonds issued by state governments and municipalities) and inflation-protected bonds (Treasury Inflation-Protected Securities).

BND has a wide range of use cases and is an integral component of a diversified portfolio, even those with relatively aggressive goals. Vanguard recommends using BND as a hedge against stock market risk — basically, a counterweight to ETFs and funds like VTI, which tend to be more volatile. Otherwise, BND is appropriate for investors with moderate to long time horizons and lower tolerance for market risk.

3. Vanguard Total International Stock ETF

  • Expense Ratio: 0.08%
  • Five-Year Return: 0.97%
  • Risk Potential: 5

The Vanguard Total International Stock ETF (VXUS) tracks the performance of the FTSE Global All Cap ex U.S. Index, which matches the performance of a broad basket of companies based outside the United States. Its component firms hail from a mixture of developed and emerging markets, limiting regional risk and ensuring access to high- and low-growth economies alike.

VXUS hasn’t performed incredibly well over the past few years — a state of affairs that probably says more about the relative strength of the U.S. equities markets during that time than the composition of the fund itself. Over longer periods, VXUS offers valuable diversification for U.S.-based investors seeking exposure to markets whose fates aren’t directly tied to the U.S. economy’s.

4. Vanguard S&P 500 ETF

  • Expense Ratio: 0.03%
  • Five-Year Return: 9.84%
  • Risk Potential: 4

The Vanguard S&P 500 ETF (VOO) tracks the performance of the S&P 500 stock index, a basket of the 500 largest U.S.-based companies and a closely watched indicator of overall U.S. economic strength. Like the underlying index, VOO is quite volatile, so it’s not appropriate for conservative investors with short time horizons and little tolerance for principal loss.

That said, it’s an essential complement to VTI, the mid- and small-cap components of which make for even greater volatility. Vanguard recommends VOO to long-term investors who can stomach near-term price drops.

5. Vanguard Russell 2000 ETF

  • Expense Ratio: 0.10%
  • Five-Year Return: 3.79%
  • Risk Potential: 5

The Vanguard Russell 2000 ETF (VTWO) tracks the performance of the Russell 2000 index, a broad basket of small U.S.-based companies. The Russell 2000 (also known as the Russell 2K) is famously volatile, so VTWO isn’t for the faint of heart (or investors with short time horizons and low tolerance for risk more generally). But VTWO is absolutely a low-cost way for more aggressive investors to ensure exposure to high-growth companies during economic booms.

6. Vanguard Large-Cap ETF

  • Expense Ratio: 0.04%
  • Five-Year Return: 9.87%
  • Risk Potential: 4

The Vanguard Large-Cap ETF (VV) tracks the performance of the CRSP U.S. Large Cap Index, which encompasses a broad basket of mostly large companies based in the U.S. Its performance is similar, though not identical, to the performance of the S&P 500 index and Vanguard’s VOO ETF, so it’s not clear you’d seek exposure to VV if you’ve already added VOO to your portfolio (or vice versa). That said, if you’re looking for an alternative large-cap basket that’s fate isn’t directly tied to the S&P 500 index’s, VV could be a better fit.

7. Vanguard Mid-Cap ETF

  • Expense Ratio: 0.04%
  • Five-Year Return: 6.20%
  • Risk Potential: 5

The Vanguard Mid-Cap ETF (VO) tracks the CRSP U.S. Mid Cap Index, a broad basket of mid-cap stocks (midsize companies) in a range of industries and sectors. Mid-cap stocks tend to be more volatile than large-cap stocks and less volatile than small-cap stocks — a healthy medium for those seeking higher growth than large-cap funds typically provide without the whiplash inherent in small-cap funds. In a diversified portfolio, VO is a nice complement to VV and VTWO.

VO is also available as a mutual fund (VIMAX). However, the $3,000 investment minimum is a high hill to climb for lower-asset investors who’d like to avoid undue exposure to midsize companies.

8. Vanguard Real Estate ETF

  • Expense Ratio: 0.12%
  • Five-Year Return: 3.87%
  • Risk Potential: 4

The Vanguard Real Estate ETF (VNQ) tracks the performance of the MSCI U.S. Investable Market Real Estate 25/50 Index, a basket of stocks in the U.S. real estate sector. Fund components typically buy and hold commercial real estate properties, such as office buildings, retail properties, and hotels, across the U.S.

VNQ’s geographical diversity insulates it from regional economic trends but can’t do much about its exposure to macroeconomic risk, as recessions tend to be bad for the U.S. real estate market writ large. That said, VNQ’s performance is not closely correlated with broader movements in U.S. equities outside real estate, so it’s a useful counterweight to funds like VO and VV.

9. Vanguard Growth ETF

  • Expense Ratio: 0.04%
  • Five-Year Return: 13.51%
  • Risk Potential: 4

The Vanguard Growth ETF (VUG) mirrors the performance of the CRSP US Large Cap Growth Index, a basket of mostly large companies with high growth potential (such as Amazon, Facebook, and Microsoft). Because of its growth focus, VUG has performed very well relative to most other sector ETFs during the past few years and even held up well during the pandemic panic-induced stock market plunge of early 2020. However, there’s no guarantee the party will last.

10. Strategic Equity Fund Investor Shares

  • Expense Ratio: 0.17%
  • Five-Year Return: 3.19%
  • Risk Potential: 5

Though you wouldn’t know it from the modest expense ratio, Vanguard Strategic Equity Fund (VSEQX) is one of Vanguard’s few actively managed funds. It’s composed mainly of small- and mid-cap funds that its managers (and the computer algorithms assisting them) believe offer above-average growth potential over longer time horizons.

Vanguard recommends holding VSEQX as a complement to large-cap funds and ETFs such as VV and advises against short-term exposure given the component funds’ inherent volatility. The minimum investment is $3,000, and there’s no ETF equivalent, so VSEQX isn’t suitable for lower-asset investors who’d prefer to limit their exposure to small- and mid-cap stocks.

11. Vanguard FTSE Social Index Fund Admiral Shares

  • Expense Ratio: 0.14%
  • Five-Year Return: Not available (13.81% since inception on Feb. 19, 2019)
  • Risk Potential: 4

Vanguard FTSE Social Index Fund Admiral Shares (VFTAX) is a socially responsible mutual fund designed to track the performance of the FTSE4Good U.S. Select Index. It’s composed mainly of mid- and large-cap stocks and expressly excludes stocks in certain industries, including weapons, adult entertainment, fossil fuels, alcohol, tobacco, gambling, and nuclear power. VFTAX also excludes stocks of companies that fail to meet U.N. global compact principles (such as anti-corruption and human rights) and certain diversity criteria (such as at least one woman on the board and written corporate diversity policies).

Final Word

Millions of satisfied clients would agree that Vanguard deserves its reputation as a low-cost, investor-friendly investment house. But investors — novices and experts alike — need to be realistic about the potential risks of investing with Vanguard too.

These risks aren’t unique to Vanguard. Investing in market-traded instruments always involves the risk of principal loss, and past performance is never a perfect predictor of future returns. Always invest in accordance with your risk tolerance and financial objectives, and if you’re not sure how to assess either or both, consult a licensed financial advisor.

Do you currently invest in any Vanguard funds? Are you eying any right now?


Originally posted at https://www.moneycrashers.com/best-vanguard-etfs-funds/

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