A business arguably reaches its branding peak when its name is synonymous with what it does. If you search something online, you “Google” it. If you need to pay your buddy half of a $28.36 restaurant check, you “Venmo” them. And if someone mentions “low-cost index investing,” your brain likely pumps out the name “Vanguard.”
And why shouldn’t it? Vanguard started this game, after all.
Vanguard founder Jack Bogle created the first index mutual fund back in 1975. Today, that product is one of the world’s largest mutual funds—along with several other Vanguard index funds. Indeed, Vanguard has dozens of indexed products that have brought in literally trillions of dollars in investor assets, and most of them will fill an investing need at a bargain-basement cost.
Of course, you don’t need dozens of funds. No investor does. Most of us can build a thriving portfolio with just a handful of funds (and, if you like a little spice, a few individual stocks). So if you are looking at the Vanguard family to either build a portfolio from scratch or augment what you already own, you probably want to narrow your focus on the crème de la Vanguard crème.
Let’s get started. I want to introduce you to some of the best Vanguard index funds you can find. Most of these funds can serve as pillars of your core portfolio, but a few are best used as satellite holdings to help you drive some outperformance. And they all charge astoundingly low fees.
Disclaimer: This article does not constitute individualized investment advice. These securities appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
Editor’s Note: Tabular data shown in this article are up-to-date as of Jan. 13, 2024.
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Table of Contents
Why Index Funds?
When you buy an investment fund, you’re buying exposure to any number of stocks, bonds, or other assets in just one share. For most of their history, human managers decided exactly which investments the fund would buy.
But in 1975, Vanguard changed all that with the advent of the index fund.
An index fund’s portfolio selections are guided by a simple benchmark (an index, which is governed by certain predetermined rules) to meet some sort of strategic goal. That goal might be as broad as merely holding all the stocks in a popular stock-market benchmark like the S&P 500 or Dow Jones Industrial Average. Or it could be as specific as holding only stocks from Peru that have high dividends, low stock valuations, and are based on companies that start with the letter “M.”
While I don’t recommend buying my hypothetical Peruvian Mmm Mmm Good Index Fund, I do recommend buying index funds in general.
For one, they’re inexpensive. An actively managed index fund has one or more managers, all of whom expect to be paid for their troubles. An index fund technically has a manager overseeing the fund, but they’re not performing stock research and deciding on trades—the index’s rules determine those actions. Thus, fund providers can afford to charge (often much) lower expenses on index funds.
Also, index funds aren’t chumps. I’ll provide an eye-opening example a little later, but human managers often struggle to beat the benchmark indexes in the first place. So if you have a fund that simply tracks a benchmark index, and it’s also charging less than most of the human managers trying to beat that benchmark, well … that fund has a decent potential for success.
Also worth noting? Turnover—how much the fund tends to buy and sell holdings—is often extremely low in index funds, as only a handful of holdings tend to enter or leave the underlying index in a given year. As a result, they typically make little to no capital gains distributions at the end of the year. The Vanguard funds I’m about to detail all sport minimal turnover, which makes them very tax-efficient investments for taxable brokerage accounts.
Why Vanguard?
Vanguard Group is one of the largest asset managers in the world, boasting roughly $8.7 trillion in net assets under management (AUM).
As I mentioned above, one of the primary reasons behind its success is Vanguard’s dirt-cheap expenses. The average asset-weighted expense ratio for U.S. mutual funds and ETFs is 0.44%, or $4.40 annually for every $1,000 invested. Vanguard’s average, across 400-plus funds, is a scant 0.08%, or a mere 80¢ annually per $1,000 invested. That’s an astoundingly low number—one that means even when a Vanguard fund isn’t the absolute cheapest in its category, it’s still going to be one of your cheapest options.
These tiny numbers add up to real savings, mind you. As a for-instance, Christine Benz, Morningstar’s Director of Personal Finance and Retirement Planning, wrote in 2023 that in the previous year alone, “Vanguard’s cost advantage saved its investors collectively about $26 billion compared with what they would have shelled out if they had invested in funds with average expenses.”
Much of Vanguard’s success on the fee-fighting front can be chalked up to founder Jack Bogle, who created the first index mutual fund and helped proliferate this fund type. Now, low-cost index funds can be found the world over, bringing costs down for millions of investors—even those who don’t buy Vanguard’s products.
But Bogle, too, was responsible for more than just cheap investing. His investment philosophies helped shape Vanguard into the titan it is today, and sparked a group (the Bogleheads) who energetically follow in his footsteps.
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How Were the Best Vanguard Index Funds Selected?
Vanguard boasts one of the largest collections of indexed mutual funds on the planet—more than 130 at last check. Not exactly the easiest number to pare down.
I’ve started with a quality screen, including only Vanguard index funds that have earned the top Morningstar Medalist rating of Gold. Unlike Morningstar’s Star ratings, which are based upon past performance, Morningstar Medalist ratings are a forward-looking analytical view of a fund. Per Morningstar:
“For actively managed funds, the top three ratings of Gold, Silver, and Bronze all indicate that our analysts expect the rated investment vehicle to produce positive alpha relative to its Morningstar Category index over the long term, meaning a period of at least five years. For passive strategies, the same ratings indicate that we expect the fund to deliver alpha relative to its Morningstar Category index that is above the lesser of the category median or zero over the long term.”
As I’ve written in other Young and the Invested articles, a Medalist rating doesn’t mean Morningstar is necessarily bullish on the underlying asset class or categorization. It’s merely an expression of confidence in the fund compared to its peers.
Because one of the primary draws of Vanguard index funds is low fees, I also decided to only consider funds whose expense ratios are well below their category average. But that ended up being pretty redundant—most Vanguard index mutual funds already fit that bill.
From the remaining universe of several dozen Vanguard index funds, I selected a range of products that fit various portfolio goals and have good-to-great track records.
One thing worth noting before starting out is that most Vanguard funds have a $3,000 minimum initial investment. But don’t worry—most Vanguard index mutual funds have ETF share classes that trade for as little as the price of one share (or less if you have a brokerage that allows fractional shares). So all the funds here should be quite accessible.
Related: Best Vanguard Retirement Funds for a 401(k) Plan
1. Vanguard 500 Index Fund Admiral Shares
— Style: U.S. large-cap stock
— Assets under management: $1.4 trillion*
— Dividend yield: 1.2%
— Expense ratio: 0.04%, or 40¢ per year for every $1,000 invested
— Minimum initial investment: $3,000
Remember when I said Vanguard founder Jack Bogle created the first index fund? That fund, first called the First Index Investment Trust, was shortly thereafter rebranded as the Vanguard 500 Index Fund Admiral Shares (VFIAX)—a fund that’s not only still around today, but one of the largest funds, at more than a trillion dollars in assets across its various share classes. (The assets under management figure shown above specifically represents their Admiral Shares mutual fund class.)
VFIAX tracks the S&P 500 Index—a well-diversified benchmark that has simply given mutual fund managers fits for decades. The majority of fund managers who run large-cap funds (funds that invest in larger companies) struggle to consistently beat the S&P 500 Index, particularly after fees. According to S&P Dow Jones Indices, through mid-year 2024, “57% of all active large-cap U.S. equity funds underperformed the S&P 500.” That’s no anomaly: A majority of active managers have now failed to beat the S&P 500 in 21 of the past 24 years.
My advice: If you can’t beat it, join it.
Related: The 8 Best Dividend ETFs [Get Income + Diversify]
The Vanguard 500 Index Fund Admiral Shares, by virtue of tracking the S&P 500, holds shares of 500 large, dominant U.S. companies. But it doesn’t hold them equally. The S&P 500 is “market-cap weighted,” which means the larger the company, the more weight the stock has in the index (and thus the more impact it has on returns). Thus, right now, VFIAX dedicates the largest portions of its assets to companies like Apple (AAPL), Nvidia (NVDA), and Microsoft (MSFT), whose market caps are measured in trillions of dollars. It’s also considered to be a “blend” fund, which means it has relatively even exposure to value stocks and growth stocks.
Financial experts frequently suggest using an S&P 500 fund as the core of your portfolio given its exposure to hundreds of larger, more financially stable companies across all sectors—from tech to health care to real estate. Because of this diversity of holdings, the S&P 500 not only provides access to the growth of the American economy, but a modest level of dividend income, too. VFIAX’s yield might not seem like much right now. However, reinvested over time, the S&P 500’s dividends make up roughly 35% to 50% of the index’s returns over the very long term (depending on the time period and study you’re looking at).
Also, as I mentioned before, most Vanguard index mutual funds have an ETF share class. Here, VFIAX’s sister Vanguard ETF is the Vanguard S&P 500 ETF (VOO), which charges 0.03% annually.
* Many Vanguard funds have multiple share classes, including ETFs. Listed net assets for Vanguard funds in this story refer to assets under management across all of a given fund’s share classes.
Related: 13 Best Long-Term Stocks to Buy and Hold Forever
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2. Vanguard High Dividend Yield Index Fund Admiral Shares
— Style: U.S. large-cap dividend stock
— Assets under management: $76.5 billion
— Dividend yield: 2.7%
— Expense ratio: 0.08%, or 80¢ per year for every $1,000 invested
— Minimum initial investment: $3,000
Investors who want a higher level of income than what the S&P 500 provides, but still want to enjoy stocks’ growth potential, can do so for a song by purchasing the Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX).
The name says it all. This Vanguard index mutual fund is constructed to deliver a high dividend yield, which it does by tracking an index of stocks that pay higher-than-average dividends. The result is a fairly conservative, largely blue-chip portfolio of roughly 530 stocks weighted by market cap.
Related: 5 Best Vanguard Dividend Funds [Low-Cost Income]
“Vanguard High Dividend Yield strikes a balance between higher yield and the inherent risks,” says Morningstar Analyst Bryan Armour. “Weighting stocks by market cap steers the fund toward more stable, large-cap stocks and away from those whose dividends may be distressed.”
Interestingly, while VHYAX does provide decent exposure to sectors defined by their defensive nature and higher-than-average dividends, such as health care (11%) and consumer staples (11%), its biggest sector allocation is to financials, which currently command more than 20% of assets. Top holdings are a who’s who of mega-cap dividend payers, including JPMorgan Chase (JPM), Johnson & Johnson (JNJ), and Exxon Mobil (XOM). The end result is exactly what the fund aims for: a nearly 3% yield that’s roughly twice what the S&P 500 delivers.
However, understand that if you invest in Vanguard High Dividend Yield Index, you won’t be invested in the real estate sector. That’s because VHYAX’s underlying index explicitly excludes real estate investment trusts (REITs)—a group of stocks we’ll get into later.
It seems like an odd exclusion, if only because REITs tend to be one of the market’s highest-yielding sectors. One possible explanation? Most common stocks, like those held in this Vanguard fund, pay qualified dividends, which enjoy favorable tax treatment at the long-term capital gains tax rate. Most REIT dividends, however, are non-qualified, which are taxed as ordinary income at federal income tax rates. By excluding REITs, VHYAX can pay out 100% qualified dividend income, helping shareholders avoid a potential tax headache.
VHYAX is also offered in ETF form: the Vanguard High Dividend Yield ETF (VYM), which costs 0.06% annually.
Related: 10 Monthly Dividend Stocks for Frequent, Regular Income
3. Vanguard Dividend Appreciation Index Fund Admiral Shares
— Style: U.S. large-cap dividend stock
— Assets under management: $106.0 billion
— Dividend yield: 1.7%
— Expense ratio: 0.08%, or 80¢ per year for every $1,000 invested
— Minimum initial investment: $3,000
You should never buy a mutual fund without looking under the hood, but that goes doubly so for dividend funds, where the word “dividend” in the name doesn’t necessarily mean you’re collecting a fat yield.
Take Vanguard Dividend Appreciation Index Fund Admiral Shares (VDADX) and its sub-2% yield, for instance.
This Vanguard dividend fund targets U.S. companies that consistently increase their cash distributions over time. Its underlying index is made up of firms that have improved their payouts on an annual basis for at least 10 consecutive years. High yield isn’t a priority. In fact, VDADX’s underlying index actually implies that high current yields are a liability, as it excludes the 25% highest-yielding eligible companies.
Why? Well … without getting too far into the weeds, high dividends can sometimes be the result of significant price drops, and in some cases might not be sustainable.
Related: The 13 Best Mutual Funds You Can Buy
That said, VDADX’s different view on dividends produces two important potential benefits:
- High quality: Only firms with strong financials and excellent cash flows can afford to keep paying shareholders more every year. So, in a way, VDADX’s commitment to dividend growers acts like a quality screen, ensuring you’re owning a higher grade of stock.
- Higher yield on cost over time: These companies might not yield much right now, but if they continue raising their dividends, you should enjoy a higher “yield on cost”—what you’re actually earning based on the price at which you bought an investment. (Example: A $100 stock paying $1 in annual dividends yields 1% [$1 / $100 = 1%]. But if you bought the stock at $50 a couple of years ago, your yield on cost is actually 2% [$1 / $50 = 2%] … plus you enjoyed a 100% price gain along the way.)
VDADX holds roughly 340 predominantly large-cap stocks with bulletproof balance sheets and the ability to churn out cash—which they increasingly fork over to shareholders in the form of dividends. All of them have raised their payouts for at least 10 years, but some have much longer histories of uninterrupted dividend growth. Procter & Gamble (PG) and Johnson & Johnson, for instance, are Dividend Kings, which are stocks that have raised their dividends annually for at least 50 consecutive years.
I mentioned above that all the Vanguard index funds on this list have relatively low expenses. VDADX is a great example. The average fee on large-cap funds like this is 0.69%, according to Morningstar. But Vanguard Dividend Appreciation charges a mere 0.08%. Fees are even lower for VDADX’s ETF class, Vanguard Dividend Appreciation ETF (VIG), which charges 0.06%.
Related: Best High-Dividend ETFs for Income-Hungry Investors
4. Vanguard Small-Cap Index Fund Admiral Shares
— Style: U.S. small-cap stock
— Assets under management: $167.3 billion
— Dividend yield: 1.3%
— Expense ratio: 0.05%, or 50¢ for every $1,000 invested
— Minimum initial investment: $3,000
If your primary investing concern is growth, and you have a pretty healthy risk appetite, you might get more bang for your buck by investing in small-cap stocks.
Small-cap companies (usually considered to be those with market caps of $2 billion or less) exhibit more potential for explosive growth, on average. For one, they benefit from the business law of large numbers: It’s much easier to double your revenues from $1 million than $1 billion. But also, as these stocks become noticed by institutional investors and fund managers, large investments can help drive their prices further higher, too.
Related: The 7 Best Vanguard ETFs for 2025 [Build a Low-Cost Portfolio]
But there’s a catch. Smaller stocks are frequently riskier and more volatile. A more diminutive company’s revenues might be dependent on just one or two products or services—meaning a single disruption could have massive financial consequences. Small caps also have less access to capital than their larger peers, meaning they’re less likely to get a lifeline should they suffer from broader economic headwinds.
High risk, high reward. A small company could feasibly double overnight … or get cut in half.
But if you wanted to harness small caps’ upside while mitigating some of that risk, you could invest in a small-company fund, such as the Vanguard Small-Cap Index Fund Admiral Shares (VSMAX).
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Vanguard scatters that risk across roughly 1,400 U.S. stocks. To be precise, they’re not all “true” small caps—a good third of the portfolio includes smaller mid-cap stocks, which as a group range from $2 billion to $10 billion. But this kind of bleed isn’t unusual for cap-based funds; different fund companies and index providers may define each cap class by different thresholds.
Single-stock risk is extremely minimal in VSMAX. Even the fund’s top holdings account for less than a half a percent of assets each. Yes, that means you won’t enjoy the full potential of any wild upside, but you also won’t feel the full brunt of a stock collapse, either.
VSMAX is also available as an ETF: The Vanguard Small-Cap ETF (VB), which costs 0.05% annually.
Related: How to Get Free Stocks for Signing Up: 10 Apps w/Free Shares
5. Vanguard Mid-Cap Index Fund Admiral Shares
— Style: U.S. mid-cap stock
— Assets under management: $189.8 billion
— Dividend yield: 1.5%
— Expense ratio: 0.05%, or 50¢ per year for every $1,000 invested
— Minimum initial investment: $3,000
Mid-cap stocks (typically considered to be companies between $2 billion and $10 billion in market cap) are the “Goldilocks” holding of the investment world. They’re bigger, more stable, and have better access to capital than their small-cap brethren, but they tend to be nimbler and have more upside potential to their big brothers in the large-cap space. Unfortunately, they often go ignored by people who gravitate either toward big, “safe” blue chips or potent small-caps … to their detriment.
Related: The 9 Best ETFs for Beginners
“In any given 1-year rolling period since 2003, small-, mid-, and large-cap stocks have outperformed 33%, 26%, and 41% of the time,” investment company Hennessy Funds said in a 2023 research note. “However, the longer mid-cap stocks are held, the more often they outperformed. In fact, 60% of the time, mid-caps outperformed small- and large-cap stocks over any 10-year rolling period in the past 20 years.”
Better still? During the 20-year period (through 9/30/23) that Hennessy studied, it found that while mid-caps delivered higher risk than large caps, they delivered better returns … and they generated both lower risk and higher returns than small caps.
Related: The 10 Best Fidelity Funds You Can Own
If you’d like to inject your portfolio with some mid-cap exposure, you can do so cost-effectively with the Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX). This Gold-rated fund owns roughly 310 stocks—it’s not a pure mid-cap fund, with roughly 10% to 15% of assets veering into large-cap territory. But VIMAX also boasts less concentration among top holdings than similar funds; the only stock it weights at more than 1% is Palantir Technologies (PLTR), which rocketed 340% higher in 2024 to a market cap well in excess of $100 billion, making it likely to be pulled from VIMAX’s tracking index the next time it reconstitutes.
Again, as is common among Vanguard index mutual funds, VIMAX has a sister ETF: the Vanguard Mid-Cap ETF (VO), which charges 0.04% annually.
Related: The 7 Best Index Funds for Beginners
6. Vanguard Total Stock Market Index Fund Admiral Shares
— Style: U.S. total-market stock
— Assets under management: $1.8 trillion
— Dividend yield: 1.3%
— Expense ratio: 0.04%, or 40¢ per year for every $1,000 invested
— Minimum initial investment: $3,000
You don’t necessarily need to buy several index funds to be invested in U.S. stocks of all sizes.
You can just buy the whole darn stock market (or a reasonable facsimile) in one fund.
The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is “designed to provide investors with exposure to the entire U.S. equity market.” It technically doesn’t invest in the entire U.S. equity market, but it’s as close as you’ll ever need, at roughly 3,600 U.S. stocks of all sizes.
Related: The 7 Best Mutual Funds for Beginners
You’re not getting those different stock sizes in equal amounts, though. Total-market funds are often market cap-weighted and lean heaviest on large caps. VTSAX is no exception, with fully 70% of assets invested in large caps, with another 20% in mid caps and the remainder in small companies. And that market-cap weighting also ensures that mega-caps such as Apple, Nvidia, and Microsoft still have the greatest influence on performance.
The upside to buying Vanguard Total Stock Market Index? Sweet simplicity. One click of the “Buy” button gives you extraordinary U.S. stock-market exposure … and at just 0.04% annually, you’re practically stealing it. This is easily one of the best Vanguard index funds you can buy to build a portfolio core.
Related: The 7 Best Closed-End Funds (CEFs)
The downside? VTSAX doesn’t make sense if you want levels of large-, mid-, and/or small-cap exposure that are different than what the fund provides. If that’s the case, you could ignore VTSAX and just build your U.S. stock portfolio with large-, mid-, and small-cap funds, or you could buy VTSAX and augment with large-, mid-, or small-cap funds to get the perfect allocation for you.
For what it’s worth, Vanguard Total Stock Market seems to be just fine for plenty of investors. The fund has amassed $1.8 trillion in assets across its share classes, which includes the Vanguard Total Stock Market ETF (VTI, 0.03% expense ratio).
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7. Vanguard Real Estate Index Fund Admiral Shares
— Style: U.S. sector (real estate)
— Assets under management: $70.8 billion
— Dividend yield: 3.9%
— Expense ratio: 0.13%, or $1.30 per year for every $1,000 invested
— Minimum initial investment: $3,000
I mentioned earlier that Vanguard High Dividend Yield excluded real estate investment trusts (REITs). But if you want exposure to that sector, you can do so through the Vanguard Real Estate Index Fund Admiral Shares (VGSLX).
Real estate investment trusts are a special class of company created by Congress in 1960 to help make real estate investing more accessible to the average Joe. REITs own and often operate real estate of all kinds—apartment buildings, office complexes, hotels, you name it. And you can buy and sell publicly traded REITs just like any other stock.
But REITs have a few rules that set them apart from traditional companies. Most importantly to income investors: REITs generally enjoy an exemption from federal income taxes … in exchange for distributing 90% of their taxable income as dividends to their shareholders. As a result, REIT dividends tend to be mighty generous.
Related: 9 Best Real Estate Crowdfunding Sites + Platforms
Vanguard Real Estate Index Fund, and similar products, allow you to invest in dozens if not hundreds of REITs easily and efficiently. VGSLX specifically holds roughly 160 real estate stocks that deal in a variety of property types, including industrial, retail, telecom tower, self-storage, office, residential, and more. Right now, top holdings include logistics and warehousing REIT Prologis (PLD), telecommunications infrastructure play American Tower (AMT), and mall giant Simon Property Group (SPG).
And true to its nature, VGSLX currently yields a healthy ~4%—not just nearly three times what you’d get from an S&P 500 fund, but well more than you’d receive from even most high-yield dividend funds.
You can get VGSLX in ETF form via the Vanguard Real Estate ETF (VNQ), which charges the same 0.13% annually.
Related: How to Invest in Grocery Stores [Buy Real Estate, Not Stock]
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8. Vanguard International Dividend Appreciation Index Fund Admiral Shares
— Style: Foreign large-cap growth stock
— Assets under management: $7.6 billion
— Dividend yield: 1.9%
— Expense ratio: 0.16%, or $1.60 per year for every $1,000 invested
— Minimum initial investment: $3,000
You might have noticed that all of the above funds have had a specifically U.S.-centric bent. That’s good—U.S. markets have long been among the most productive in the world, and if you believe in the American economy’s ability to keep growing, that should remain the case.
But most experts would tell you that it’s worth having at least some international exposure. Vanguard International Dividend Appreciation Index Fund Admiral Shares (VIAAX) is one of the best Vanguard index funds for the job.
Related: 13 Dividend Kings for Royally Resilient Income
Vanguard International Dividend Appreciation Index has a similar thrust to Vanguard Dividend Growth in that it’s interested in owning high-quality companies, which it does by identifying and holding companies with a history of increasing their dividends. VIAAX tracks the S&P Global Ex-U.S. Dividend Growers Index, which consists of international firms that have improved their payouts on an annual basis for at least seven consecutive years. Also, as an additional quality screen, the index excludes the 25% highest-yielding eligible companies from the index. Without getting too far into the weeds, high dividends can sometimes be the result of significant price drops and in some cases might not be sustainable.
VIAAX is most heavily invested in developed European and Asian markets such as Japan, Switzerland, and the U.K., though it also has a high concentration in Canadian stocks, as well as some exposure to emerging markets such as India and Mexico. But many of its roughly 330 holdings will be plenty familiar to Americans—it’s loaded with blue-chip multinational firms like Swiss food giant Nestlé (NSRGY), Japanese tech titan Sony (SNE), and Danish pharmaceutical company Novo Nordisk (NVO). Also, as is common with developed-country funds, VIAAX’s roughly 2% yield is higher than comparable U.S. funds.
You can get this Vanguard fund as an ETF, too: the Vanguard International Dividend Appreciation ETF (VIGI), which charges 0.15% annually.
Related: 9 Monthly Dividend Stocks for Frequent, Regular Income
9. Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares
— Style: Intermediate-term core bond
— Assets under management: $50.8 billion
— SEC yield: 5.2%*
— Expense ratio: 0.07%, or 70¢ per year for every $1,000 invested
— Minimum initial investment: $3,000
Most investors will want some exposure to bonds—debt issued by governments, companies, and other entities that pay interest to bondholders. But how much will largely depend on your age.
Bonds tend to be much less volatile than stocks, for better or worse; it limits downside, yes, but it also limits upside. Instead, most of the return from bonds comes from the steady stream of interest income they produce. They’re not great for generating wealth, which is your prime concern when you’re younger, but they’re outstanding for protecting wealth, which becomes increasingly pivotal as you age.
But it’s tough to go out and buy a single bond. Data and research on individual issues is much thinner than it is for publicly traded stocks, plus, some bonds have minimum investments in the tens of thousands of dollars. So, your best (and most economical) bet is to buy a bond fund, which can provide you with access to hundreds if not thousands of bonds.
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For instance, the Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares (VICSX) allows you to invest in more than 2,200 investment-grade corporate bonds with maturities of between five and 10 years.
Investment-grade corporates are a little riskier than similar-maturity Treasuries, but you get a bit more yield as a result … and they’re not exactly poor-quality bonds. VICSX’s portfolio is split roughly 50/50 between BBB-rated bonds (the lowest investment-grade rating) and A-rated or above. Meanwhile, the focus on intermediates provides a fair blend of risk and income.
Duration (a measure of interest-rate risk) is six years, which implies that a 1-percentage-point increase in interest rates would lead to a 6% decline in the fund, and vice versa.
VICSX’s ETF version is the Vanguard Intermediate-Term Corporate Bond ETF (VCIT), which charges 0.04% annually.
* SEC yield reflects the interest earned across the most recent 30-day period. This is a standard measure for funds holding bonds and preferred stocks.
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10. Vanguard Short-Term Treasury Index Fund Admiral Shares
— Style: Short-term U.S. Treasury bond
— Assets under management: $2.7 billion
— SEC yield: 4.2%
— Expense ratio: 0.07%, or 70¢ per year for every $1,000 invested
— Minimum initial investment: $3,000
Investors who want to significantly reduce risk might prefer the Vanguard Short-Term Treasury Index Fund Admiral Shares (VSBSX), which focuses on a subset of bonds that have very low risk for two reasons: they have short maturities, and they’re issued by the U.S. Treasury.
Related: 10 Best Vanguard Funds for the Everyday Investor
Maturity helps determine risk. Generally speaking, the longer the bond, the greater the risk that the bond might not be repaid. Interest rates come into play, too. When rates go higher, new bonds pay more, which tempt people to sell their old bonds for the new, higher-paying bonds. But the temptation is much greater when you’re dealing with longer-term bonds with lots of payments remaining—and not so great for short-term bonds with one or just a couple payments left.
Meanwhile, U.S. Treasury bonds, which are backed by the full faith and credit of the U.S. government, are some of the highest-rated bonds on the planet. Is there 100% certainty they’ll be repaid? No. But is there a higher likelihood of repayment than the vast majority of issuers out there? You betcha.
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VSBSX invests in fewer than 100 Treasury bond issues with maturities of between one and three years. And the lower risk is reflected in the averaged duration, which currently sits at just 1.9 years—thus, a 1-percentage-point hike in interest rates would knock VSBSX just 1.9% lower, versus a 6% hit for the corporate bond fund VICSX. The flip side? VSBSX wouldn’t rise as much if interest rates declined.
But that’s OK, as long as you know what you’re buying! If all you want is portfolio protection that can still generate some yield (just above 4% currently), VSBSX is one of the best Vanguard mutual funds you can buy. Or, if you prefer ETFs, you can purchase the Vanguard Short-Term Treasury ETF (VGSH), which charges 0.04% annually, instead.
Related: 5 Best Vanguard Retirement Funds [Start Saving More, for Less]
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If you’re buying a fund you plan on holding for years (if not forever), you want to know you’re making the right selection. And Morningstar Investor can help you do that.
Morningstar Investor provides a wealth of information and comparable data points about mutual funds and ETFs—fees, risk, portfolio composition, performance, distributions, and more. Morningstar experts also provide detailed explanations and analysis of many of the funds the site covers.
With Morningstar Investor, you’ll enjoy a wealth of features, including Morningstar Portfolio X-Ray®, stock and fund watchlists, news and commentary, screeners, and more. And you can try it before you buy it. Right now, Morningstar Investor is offering a free seven-day trial and a $50 discount on their annual plan. You can check out the current deal, as well as other discounted rates for students and teachers, by visiting the Morningstar Investor website.
What is the Minimum Investment Amount on Vanguard Mutual Funds?
Vanguard funds are known for being shareholder-friendly. The Vanguard mutual fund company blazed new trails with the index fund, and Vanguard has done more than any other investment firm to keep costs to a minimum for investors.
But there is one hitch. Many of Vanguard’s cheapest funds in terms of fees have initial investment minimums of around $3,000.
If that is a problem for you, don’t sweat it. Most popular Vanguard index funds are also available as ETFs. Most self-directed HSAs will allow you to buy as little as one share, and some even allow for fractional shares. And if you use a commission-free brokerage, you can buy those ETFs without incurring additional fees. ETF prices vary, of course, but many cost less than $100, and they rarely exceed $400 per share.
Why Does a Fund’s Expense Ratio Matter So Much?
Every dollar you pay in expenses is a dollar that comes directly out of your returns. So, it is absolutely in your best interests to keep your expense ratios to an absolute minimum.
The expense ratio is the percentage of your investment lost each year to management fees, trading expenses and other fund expenses. Because index funds are passively managed and don’t have large staffs of portfolio managers and analysts to pay, they tend to have some of the lowest expense ratios of all mutual funds.
This matters because every dollar not lost to expenses is a dollar that is available to grow and compound. And over an investing lifetime, even a half a percent can have a huge impact. If you invest just $1,000 in a fund generating 5% per year after fees, over a 30-year horizon, it will grow to $4,116. However, if you invested $1,000 in the same fund, but it had an additional 50 basis points in fees (so it only generated 4.5% per year in returns), it would grow to only $3,584 over the same period.
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Related: 6 Best Stock Recommendation Services [Stock Picking + Tips]
Stock recommendation services are popular shortcuts that help millions of investors make educated decisions without having to spend hours of time doing research. But just like, say, a driving shortcut, the quality of stock recommendations can vary widely—and who you’re willing to listen to largely boils down to track record and trust.
The natural question, then, is “Which services are worth a shot?” We explore some of the best (and best-known) stock recommendation services.
Related: 13 Best Long-Term Stocks to Buy and Hold Forever
As even novice investors probably know, funds—whether they’re mutual funds or exchange-traded funds (ETFs)—are the simplest and easiest ways to invest in the stock market. But the best long-term stocks also offer many investors a way to stay “invested” intellectually—by following companies they believe in. They also provide investors with the potential for outperformance.
So if you’re looking for a starting point for your own portfolio, look no further. Check out our list of the best long-term stocks for buy-and-hold investors.
Related: 10 Best Monthly Dividend Stocks for Frequent, Regular Income
The vast majority of American dividend stocks pay regular, reliable payouts—and they do so at a more frequent clip (quarterly) than dividend stocks in most other countries (typically every six months or year).
Still, if you’ve ever thought to yourself, “it’d sure be nice to collect these dividends more often,” you don’t have to look far. While they’re not terribly common, American exchanges boast dozens of monthly dividend stocks.
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