The Vanguard Group is a famous American investment advisor. It is based in Malvern, Pennsylvania and has over $5.3 trillion in assets under management. It is the most important provider of mutual funds, the second-largest provider of exchange-traded funds (ETFs) of the world after BlackRock’s iShares. In addition to mutual funds and ETFs, Vanguard offers brokerage services, variable and glued annuities, educational account services, financial planning, asset management, and trust services. The Vanguard group has some wonderful index funds for potential investors to choose from and in this post, we’ll be taking a look at them. Let’s get started.
Vanguard Index Funds
What’s an index?
An index is nothing but a set of companies that represents some segment of the stock exchange or maybe the whole stock exchange. The Standard & Poor’s 500, or S&P 500 in short, tracks 500 large companies and is the perennial nemesis of active fund managers charged with the unenviable task of trying to beat it.
The Wilshire 5000 is broader, and is designed to measure the performance of all stocks actively traded in the United States. The Russell 2000 tracks the ups and downs experienced by small cap firms. There are indexes for each sector of the market throughout the planet as well.
“A good way to think about it is like a funnel. You could think about it in terms of the broadest of the broad markets, and then imagine it narrowing to focus on specific types of companies,” says Jim Rowley, head of active-passive portfolio research at Vanguard.
Investors can choose one fund that tracks the global stock market or build their own template with index funds of individual countries or regions. A lot of indices track different firms based on their size, small, medium or large. Quite a few indices also follow sectors such as manufacturing, healthcare and IT. Bond indices can also break the bond market in similar ways to stocks. Instead of segmenting bonds by the size of the company, they are grouped according to the creditworthiness of the company (because bonds are a debt instrument). Bonds are also categorized based on their maturity. As a result of that, short term and long term bonds are always placed in different baskets. While that might sound somewhat complicated and the availability of so many options might seem overwhelming, don’t give up.
What are index funds?
Index funds are mutual funds or exchange-traded funds that track an index, such as the S&P 500. They are designed to offer investors exposure to a broad swath of the stock exchange at a really low cost. Index funds are distinct from actively managed funds. An active fund and an index fund may consist of stocks of some of the same companies. But the active fund will hold them in several weightings and concentrations in an effort to beat the index, which results in a vastly different set of risks and returns. Index funds consistently outperform most active funds, on top of that, they also carry lower fees.
“One of the good things about index funds is that they’re an excellent start line,” Vanguard’s Rowley says. Vanguard was founded by John Bogle, the inventor of the index fund. “If you would like to create a broadly diversified, low-cost portfolio, a sensible way is to settle on a U.S. market index fund, a world market fund and investment-grade bonds,” he says.
What are the best Vanguard index funds?
Vanguard provides more than 100 index funds and ETFs for investors to choose from. There is no set “right fund” for you as it depends on your investment goals, portfolio mix and what fees you can afford. While past performance can’t be seen as a guarantee of results, it does a good job of giving a general idea of the fund and its performances. Here are some of the best Vanguard index funds.
Vanguard 500 Index Fund (VFIAX)
Kicking off our list of the best Vanguard index funds is the Vanguard 500 Index Fund (VFIAX). This fund is also called the Vanguard S&P 500 Index fund. This is the first fund that gave investors an exposure to 500 of the largest U.S. companies. These companies make up over 75% of the total value of the US stock market.
Minimum investment: $3,000. Expense ratio: 0.04%.
Vanguard Total Stock Market Index Fund (VTSAX)
Next on our list of the best Vanguard index funds is the Vanguard Total Stock Market Index Fund (VTSAX). This fund goes beyond the VFIAX and covers the US equity market completely. It includes small, mid, and large cap growth and value stocks.
Minimum investment: $3,000. Expense ratio: 0.04%.
Vanguard Total Bond Market Index Fund (VBTLX)
Next on our list of the best Vanguard index funds, is the Vanguard Total Bond Market Index Fund (VBTLX). This fund gives its investors an exposure to U.S. investment-grade bonds. 70% is invested in US Government bonds and 30% is invested in corporate bonds.
Minimum investment: $3,000. Expense ratio: 0.05%.
Vanguard Balanced Index Fund (VBIAX)
Next on our list of the best Vanguard index funds, is the Vanguard Balanced Index Fund (VBIAX). As it’s evident from the name, the fund consists of a mixture of stocks (around 60%) and bonds (around 40%). This fund balances growth through exposure to equities, with stability through fixed-income investments.
Minimum investment: $3,000. Expense ratio: 0.07%.
Vanguard Growth Index Fund (VIGAX)
Next on our list of the best Vanguard index funds, is the Vanguard Growth Index Fund (VIGAX). This fund is suitable for investors who are open towards taking a little more risk in order to enjoy the high returns of S&P 500 type broad market indices. This index fund consists of large-cap growth stocks that have been outperforming the S&P 500 for over 10 years.
Minimum investment: $3,000. Expense ratio: 0.05%.
Vanguard Small Cap Index Fund (VSMAX)
Next on our list of the best Vanguard index funds, is the Vanguard Small Cap Index Fund (VSMAX). This index fund is focused on smaller, publicly held companies. It is very useful for investors who are looking to diversify their investments away from large public companies.
Minimum investment: $3,000. Expense ratio: 0.05%.
Vanguard Total International Stock Index Fund (VTIAX)
Next on our list of the best Vanguard index funds, is the Vanguard Total International Stock Index Fund (VTIAX). The index that VTIAX tracks has more than 6,000 non-American stocks and features stocks from developed markets like Germany and Japan, as well as developing markets such as China, India and Brazil. Minimum investment: $3,000. Expense ratio: 0.11%.
Vanguard Total International Bond Index Fund (VTABX)
Rounding off our list of the best Vanguard index funds is the Vanguard Total International Bond Index Fund (VTABX). It tracks the performance of non-U.S. investment-grade bonds.
Minimum investment: $3,000. Expense ratio: 0.11%.
So those were the best Vanguard index funds for you to invest in. If you were looking to invest some money in one of Vanguard’s index fund’s offerings, the information in this post should help you choose the right one for yourself.