Table of Contents Hide
- What are Vanguard Index Funds?
- What is the operation of Vanguard index funds?
- Is Vanguard index funds worth your Money?
- What will it cost to buy Vanguard Index Fund Shares?
- How do you buy Vanguard Index fund shares?
- What are the Available Vanguard Mutual Index Funds?
- What Should I Consider When Choosing a Vanguard Index Fund?
Buying shares in index funds is a great way of building up your portfolio while minimizing fees. Vanguard index funds are a popular option, with over 60 Vanguard index mutual funds tracking a wide range of domestic and international stock and bond indexes.
Here’s everything you need to know about Vanguard index funds, types, and major factors to consider when picking the best one for your portfolio.
What are Vanguard Index Funds?
Index funds are a type of mutual fund in which thousands of investors pool their money to buy shares in a fund that replicates a benchmark index, such as the S&P 500 (hence the name “index fund”).
When Vanguard founder John Bogle launched the first publicly available index fund in 1976, it was a radically different investment approach.
Active investing, in which fund managers try to outperform the market, was popular at the time.
The index fund’s goal was simply to match the rise and fall of the broad market, industry, or sector movements, and it gave ordinary Americans more access to stock investing.
For two reasons, this simpler approach, known as passive investing, has proven to be more profitable for the average investor than active investing: Markets rise over time, and index funds have lower fees, allowing investors to keep more of their money in the market. As a result, investors are increasingly turning to passive funds.
And many of these investors turn to Vanguard, the world’s largest mutual fund provider, with $5.3 trillion in assets under management as of September 2018.
What is the operation of Vanguard index funds?
Vanguard creates index funds by purchasing securities that represent companies across an entire stock index or that are targeted to specific groups of investors (for example, an industry sector, similarly sized companies or firms in the same part of the world).
Individual investors buy shares in a fund that interests them, claiming a portion of the fund’s returns.
Vanguard also offers bond index funds, which buy and sell government and corporate debt and are considered safer investments with lower returns.
Vanguard has over 65 index funds and 80 index exchange-traded funds in total.
Is Vanguard index funds worth your Money?
Vanguard funds, like all investments, carry some level of risk. Investors in Vanguard’s flagship S&P 500 Index Fund, for example, saw the fund’s value fall by more than 4% year over year following the market turmoil in 2018.
However, thanks to the second-longest bull market in history, the fund’s 10-year average annual return was 14.3 percent.
Because most actively managed funds fail to consistently outperform the market, passive investing in index funds is extremely popular.
According to Vanguard and Morningstar data, only about 11% of actively managed stock funds outperformed their benchmark from 2002 to 2017.
Vanguard index funds, like all mutual funds, provide instant diversification, spreading out risk and dampening the impact of volatility because broad stock market swings are less jarring than the rise and fall of any single company’s shares.
Vanguard index fund shares cost varies. There are basically two types of Vanguard index fund shares available for investors and each has its minimum investment cost. The first is Admiral shares, and the second is Investor shares.
The Admiral shares minimum investment cost $3,000 to $100,000 with an average expense ratio of 0.11%.
On the other hand, investor shares minimum investment cost $1,000 to $3,000 with an expense ratio of 0.18%.
You can buy Vanguard index fund shares directly from Vanguard or by opening a brokerage account. Aside from that, you can also get shares through your 401(k) provider if you have any.
During the process, choose the type of account you want: a traditional, taxable account or Roth IRA.
What are the Available Vanguard Mutual Index Funds?
Vanguard has over 100 index funds and ETFs. Determining the best one to invest in should depend on your portfolio mix and your account minimum and fees.
Having said that, below are some of the high Vanguard index funds worth investing your money in this 2021:
1. Vanguard 500 Index Fund (VFIAX)
Minimum investment: $3,000
Expense ratio: 0.04%.
Vanguard 500 Index Fund is a mutual fund that invests in the S& (VFIAX).
It is one that started it all, giving investors exposure to 500 of the largest U.S. companies, which account for 75% of the total value of the U.S. stock market. It is also known as the Vanguard S&P 500 Index fund.
2. Vanguard Total Stock Market Index Fund (VTSAX)
Minimum investment: $3,000
Expense ratio: 0.04%.
Vanguard Total Stock Market Index Fund is a mutual fund that invests in the entire stock market (VTSAX).
With this fund, you can invest in the entire equity market in the United States, including small-, mid-, and large-cap growth and value stocks.
3. Vanguard Total Bond Market Index Fund
Minimum investment: $3,000
Expense ratio: 0.05%.
This fund has broad exposure to US investment-grade bonds, investing roughly 30% in corporate bonds and 70% in US government bonds.
4. Vanguard Balanced Index Fund
The Vanguard Balanced Index Fund has a moderate allocation, with 60% invested in stocks and 40% in bonds.
At a low expense ratio of 0.07 percent, the diversified fund provides growth and income while passively investing.
According to McBride, investing in a single mutual fund or ETF will provide access to an entire asset class while lowering the amount of risk in a portfolio.
5. Vanguard Developed Markets Index Fund (VTMGX)
The Vanguard Developed Markets Index Fund invests in large, mid, and small companies in markets other than the United States.
It is a global stock asset class, with a focus on the health care and technology sectors.
This fund attempts to replicate the performance of the FTSE Developed All Cap ex US Index. It also has a 0.07 percent expense ratio and a 6.65 percent 10-year average annual return.
Toyota, Astrazeneca, and Samsung Electronics are among the major companies represented in the fund.
What Should I Consider When Choosing a Vanguard Index Fund?
When deciding which Vanguard index fund to purchase, consider the type of index you want your fund to track.
Then compare the fees and costs of various funds that track the same index. Check out our asset allocation guide and model portfolios for more information.
Select an index
When it comes to index mutual funds, it is critical to select the index for your needs. There are literally hundreds of options. You can select an index based on the industry, size of the company, location, or asset type.
To get started, if you’re overwhelmed by the options, consider a target-date fund, a balanced fund, or a broad-market index that tracks the performance of a large segment of the stock market.
Costs should be considered.
Index mutual funds typically have lower costs than other investment options, making them an excellent option for long-term investing.
However, there are other costs to consider, such as expense ratios and fees.
The expense ratio indicates how much of the fund’s assets are used for administrative and operational expenses, which reduces your returns.
Vanguard claims that the average expense ratio across its index mutual funds is 73% lower than the industry average.
Vanguard may charge purchase and redemption fees when purchasing or selling shares of its mutual funds.
Many of the company’s funds are fee-free, but a few charges 0.25 percent to 1.00 percent for purchases and redemptions.
- Forbes.com- vanguard Mutual Index Funds
- Finance.zacks.com- Invest Vanguard SP 500 fund.
- Nerdwallet.com- Vanguard Index Fund