Vanguard is the world’s largest issuer of mutual funds and the second-largest issuer of exchange-traded funds (ETFs). Vanguard founder John Bogle started the first-ever index fund tracking the S&P500, all the way back in 1975.
Index funds present investors with an investment that has exposure to the stock market, or other assets, by using one centrally-controlled fund. A Fund manager conducts trading activity on the account, giving investors a passively managed, hands-off investment that grows their money.
Index funds typically have low fees compared to trading a brokerage account actively, but they don’t produce the same shocking returns that you can make by trading your account yourself.
Still, index funds are an attractive option for investors that want to park their money and have it work for them rather than lose out to inflation. Currently, Vanguard has more than $5.1-trillion in assets under management, making it one of the world’s largest investment firms.
Vanguard index funds are some of the most popular offerings in the investment market. These funds use a passively-managed, index-sampling strategy, that tracks a benchmark index, such as the S&P500.
The management team at Vanguard charges investors expense ratios on the money that they park in the fund, which is some of the lowest in the industry. Therefore, Vanguard index fund investors get the benefit of low fees and good returns on their money.
Passive Management Strategies
- 1 Passive Management Strategies
- 2 Why Are the Fees Low with Vanguard?
- 3 Do Fees Matter?
- 4 Why Are Vanguard Funds Popular?
- 5 What Funds Does Vanguard Offer?
- 6 Vanguard Index Funds
- 7 Vanguard Bond Funds
- 8 Vanguard REITs
- 9 Vanguard Retirement Funds
- 10 Vanguard Dividend Funds
- 11 Should You Invest with Vanguard?
Passive management strategies involve purchasing benchmark indexes that provide investors with a steady, market-related return. These strategies differ from active management, where the fund tries to outperform the benchmark rate.
Passive management strategies might only provide a 7 to 11% return on average, whereas actively managed strategies can sometimes deliver returns, which are many multiples higher. However, while actively managed funds, such as hedge funds, might manage to beat the index, they also charge their clients much more in fees.
Surprisingly enough, many passively-managed funds somehow manage to outperform the vast majority of hedge funds employing the use of actively managed strategies. Sub-par performance levels, combined with high management fees, leads to inferior investment results.
Various academic studies show that higher fees are the most significant contributing factor to sub-par performance for most actively managed funds. Therefore, many investors choose to park their money with a passively-managed fund that tracks an index like the S&P500. Why try to beat the market if it earns you less money?
Why Are the Fees Low with Vanguard?
Most investment management firms have shareholders that demand profits. As a result, the firms need to charge investors higher fees to compensate for their shareholder returns. Vanguard’s business model has no outside investors. Therefore, it has no responsibility to make anyone money other than its clients.
The funds own the company, and the investors that park their money with the firm own the fund, which is why Vanguard has such low fees. As a result, investors into the fund get higher returns and pay less in fees.
Do Fees Matter?
When browsing through a fund prospectus or information, you might come across a section that talks about fees. Most investment firms measure the “expense ratio” as a means of charging their investors the money it costs to run the firm. Whenever Vanguard places a trade on behalf of the fund, it costs a trading fee to enter and exit the position.
Trading fees vary by the number of shares the fund is purchasing, as well as any other costs involved, such as ECN fees. The investors are all liable for refunding Vanguard with the cost of taking the trade on their behalf. Vanguard totals the costs up at the end of the year and then expresses them as a percentage of the profits made for the fund.
Most passively managed funds can charge an expense ratio of up to 1.08%. While this might not seem like much, it’s taking away a significant portion of returns over the lifetime of your investment.
Why Are Vanguard Funds Popular?
The Harris Poll identifies the top brands in over 100-categories. Vanguard is the only financial services company that managed to make it into the “Top 13 Brands of the Year with the Largest Equity Increases.” Vanguard also has the top spot in the top financial services firm in the investment category as well.
Vanguard revolutionized the industry by making investing available to the masses. As a result of this innovation, unaccredited investors with a net worth of less than $1-million, and less than $200,000 in annual income, could have exposure to the global stock markets.
Another factor that makes Vanguard so popular is it has no outside investors and offers the lowest fees in the industry for its clients. The company puts the interests of its investors first, and that translates to an average expense ratio of 0.19%, compared to the industry average of 1.08%.
When it comes to measuring the success of its funds, Vanguard has an impressive performance record that shows 86% of its funds outperformed competitors over the last 5-years, with 94% of the funds beating the competition over the previous 10-years.
What Funds Does Vanguard Offer?
Vanguard has numerous investment funds. Each of them serves a different purpose in your investment strategy. In this section, we’ll unpack all the offers to give you a further understanding of choosing the find that’s right for you.
Vanguard Mutual Funds
Vanguard mutual funds provide you with exposure to hundreds of individual stocks at once. This method of diversifying the risk over many different securities stabilizes your annual return on your investment.
As the old saying goes, “Don’t put all of your eggs in one basket.”
The composition of the securities in the mutual fund all has a purpose, and many fund managers use “hedging strategies,” where the value of one asset might offset a fall in another, reducing the loss.
As a result, growth is slower, but your al has the option of investing in low, medium, and high-risk portfolios that can increase the yield of the investment. For example, a high-risk portfolio might include bonds or currency positions in emerging markets.
Investing in a Vanguard mutual fund is one of the lowest-risk investments you can make, and it doesn’t cost much to open and fund an account. Mutual funds are also inexpensive to operate, as managers gear the portfolio structure for the long term, reducing trading commissions that might increase the expense ratio.
You can set up automatic payments for easy investing in your fund, making it a truly “hands-off” experience.
Read More: What is a Mutual Fund?
This fund focuses primarily on under-valued stocks in American companies. Some of its holdings include Cigna, Micron Technology, and Cardinal Health. The annual expense ratio of the fund averages at 0.39%, which is far below the industry average of 1.16%.
With annual returns sitting at 20.4%, that’s a recipe for success for its investors. To buy into the VASVX, you need a minimum starting balance of $3,000.
(VWIGX) – The Vanguard International Growth Investor
This Vanguard fund focuses on international stocks in developed and emerging markets. Some of its holdings include the companies; Ten Cent Holdings, Baidu, and the Asian Tiger, Alibaba.
With an annual expense ratio sitting at 0.45%, that’s a huge saving in fees over the industry average 1.19% compared to a category average of 1.19%. Investors into this fund see returns of as high as 43.5% annualized, depending on market performance, of course.
Buying into the VWIGX requires a minimum investment of $3,000.
Vanguard Index Funds
Vanguard Index funds track the value of indexes in a wide variety of asset categories. From stock and bond markets to real estate, Vanguard has a diverse offering of finds to suit your risk appetite and your investment goals.
Read: What are Index Funds?
(VTMGX) – The Vanguard Developed Markets Index
This fund invests in international developed markets in Japan, Europe, Canada, and Australia. The fund’s holdings comprise top companies like Royal Dutch Shell, British Petroleum, Toyota, and Samsung.
With an annual expense ratio as low as 0.7%, and annualized returns as high as 26%, this fund is a no-brainer for any astute investor. The VTMGX has a minimum investment requirement of $10,000.
(VTSAX) – The Vanguard Total Stock Market Index
This fund provides the investor with exposure to the entire U.S Stock market. Assets include large companies like Amazon, Apple, and Facebook, as wells as other medium-sized companies, as well.
The fund has an expense ratio of 0.05%, with annualized returns as high as 15.69%. The minimum investment required for this fund is $10,000.
Vanguard Bond Funds
While you use index funds and mutual funds to grow your wealth, you use bond funds as a “safe haven.” Bond funds have lower yields, but they have lower risk as well. Bond funds are attractive to retirees because they’re relatively liquid.
Read: What are Bonds?
(VMLTX) – The Vanguard Limited-Term Tax-Exempt
This fund invests your money into municipal bonds with a rating of BBB or higher. The fund has a 0.19% expense ratio and a 1.5% yield. The minimum investment requirement is $3,000.
(VFSTX) – Vanguard Short-Term Investment-Grade Investor
This fund invests into corporate bonds rated BBB or higher by Standard & Poors. Other assets in the fund include commercial mortgages and treasury notes. The fund carries an expense ratio of 0.2%, with a yield of 2.1%. The minimum investment in the fund is $3,000.
A real estate investment trust (REIT) is a fund that gives investors exposure to the real estate market. The fund owns commercial buildings like hotels that earn rental income. The fund distributes its earnings to its investors, allowing you to create passive income with real estate through this investment strategy.
You have no involvement with the management and running of the real estate; you just collect checks. There’s also a lower risk in investing in REITS, as the fund diversifies its holdings across thousands of assets.
Read: What are REITs?
(VNQ) – The Vanguard REIT ETF
This ETF tracks the index of U.S companies that own and operate real estate assets.
Some of the holdings include companies like Public Storage, Equity Residential Equinox Inc, and American Tower Corp.
The expense ratio of the fund is 0.12%, with a yield of 4.42%. The fund requires a minimum investment of $3,000.
This fund invests in REITS that have interests in commercial real estate like hotels and office blocks. The fund’s holdings include Digital Realty Trust, Proglogis Inc, Equity Residential, and Avalon Bay Communities. The fund’s expense ratio is 0.12%, with a yield of 4.80%. The minimum investment into VGSLX is $10,000.
Vanguard Retirement Funds
Vanguard offers retirement funds for those investors with a long-term strategy. The fund also includes investment accounts for retired individuals as well.
(VFIFX) – The Vanguard Target Retirement 2050 Fund
This fund liquidates at its target date in 2050. Therefore, if you want to invest in the fund, your ideal withdrawal date should be in 2050. The fund’s investment strategy changes as it matures, starting with equities and other high-risk assets, and shifting towards bond funds as the maturity date nears.
At the moment, the fund’s portfolio comprises of 90% stocks. The fund focuses on blue-chip companies in a wide variety of sectors. The fund has an expense ratio of 0.15%, with an average 5-year return of 9.88% and a minimum investment of $1,000.
(VWINX) – The Vanguard Wellesley Income
This fund features a portfolio of two-thirds stocks and one-third bonds, provide more consistent returns to investors. The fund has an expense ratio of 0.22%, with the 5-year return averaging 5.95%. The fund also has a minimum investment requirement of $3,000.
Vanguard Dividend Funds
These funds give investors exposure to stocks that pay dividends to shareholders.
This fund invests in high dividend growth. The fund’s expense ratio is 0.08%, with 5-year average returns being 11.30%. The minimum investment in this fund is $10,000.
This Vanguard fund invests into U.S Large-caps. The fund has an expense ratio of 0.15%, with a 2.88% yield. The minimum investment in the fund is $3,000.
Should You Invest with Vanguard?
With low expense ratios and some attractive returns, it’s no wonder why Vanguard is leading the industry in financial investments for middle-class Americans. Secure your retirement, and your dreams of economic freedom, by opening a Vanguard fund today.