There are plenty of good reasons to invest for retirement. People value their financial independence, and investing can help them maintain their standard of living in their post-working years. When we consider the long-term effects of inflation and the fact that government benefits like Supplemental Security Income administered by the Social Security Administration were not designed to be the sole source of retirement income, investing in the markets becomes even more important.
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Mutual funds are an attractive retirement investment vehicle. They offer diversification and professional management in an accessible format that’s easy to understand. But which family of funds should you choose? And, which funds within that family are the best? The sheer number of choices and the often confusing marketing by brokers and money managers can make picking mutual funds a daunting task.
Vanguard mutual funds are a popular choice among investors who are saving for retirement. Vanguard is a mutual company, meaning it is owned by the shareholders of the funds it manages. Because it doesn’t have third-party owners demanding a share of the profits, the company can keep expenses low and concentrate on providing superior returns. Investors feel comfortable with Vanguard because of its sterling reputation in the investment industry. Also, Vanguard invests with a long-term outlook, which makes it well suited to retirement investing.
Here are the seven best Vanguard mutual funds for retirement investing:
| Vanguard fund | Expense ratio |
| Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX) | 0.04% |
| Vanguard Target Retirement 2070 Fund (VSVNX) | 0.08% |
| Vanguard Core Bond Fund Investor Shares (VCORX) | 0.2% |
| Vanguard Dividend Appreciation Index Fund Admiral Shares (VDADX) | 0.08% |
| Vanguard Long-Term Treasury Index Fund Admiral Shares (VLGSX) | 0.07% |
| Vanguard Explorer Fund Investor Shares (VEXPX) | 0.45% |
| Vanguard Global Wellington Fund Admiral Shares (VGWAX) | 0.37% |
Vanguard 500 Index Fund Admiral Shares (VFIAX)
When investing for retirement, it makes sense to own an S&P 500 index fund. The S&P 500 offers broad exposure to large-cap equities and is a good reflection of the health of the stock market and, indirectly, the U.S. economy.
VFIAX mirrors the S&P 500 by owning all 503 of the stocks that make up the index in the same cap-weighted proportions. All the companies in the index are considered well-established, large-cap firms. They span many industries and economic sectors and, as a group, they make up about three-quarters of the market value of the entire publicly traded stock market.
Vanguard touts VFIAX — established in 1976 — as “the industry’s first index fund for individual investors.” The exceedingly low expense ratio of just 0.04% makes it an exceptional fund for retirement.
Vanguard Target Retirement 2070 Fund (VSVNX)
VSVNX is just one of a series of 12 actively managed, target-date retirement funds offered by Vanguard. Each one targets investors who fall within a stated age range. VSVNX is for investors born between 2003 and 2007 who are not planning to retire for at least four decades. Other investors with shorter time horizons might consider the Vanguard Target Retirement 2045 Fund (VTIVX), for example. Regardless of which target year is suitable for you, all of them are managed on the same principle: They’re more aggressive when the investor is further from retirement, and they get more conservative as retirement nears.
You can expect VSVNX to be highly concentrated in the stock market, while VTIVX has a more equitable mix of stocks and bonds. Following the same principle, Vanguard Target Retirement 2025 Fund (VTTVX) is mostly bonds.
VSVNX and the other funds in the series are all expertly managed by Vanguard portfolio managers and all have a low expense ratio of 0.8%. Just choose the one that’s best for you.
[READ: 2024 Investment Outlook: Is There a Comeback in Sight for Bonds?]
Vanguard Core Bond Fund Investor Shares (VCORX)
Every retirement portfolio should have a fixed-income component to complement and enhance the equity component.
VCORX is a diversified bond fund that invests in U.S. government and government agency bonds and investment-grade corporate bonds. The bonds in the portfolio have a mixture of short, intermediate and long maturities.
The portfolio managers who run VCORX are highly disciplined and focus on controlling interest rate risk. This approach makes the fund an excellent core bond holding in a retirement account.
VCORX is an actively managed fund, making it a little more expensive than an index bond fund. That said, the 0.2% expense ratio is very reasonable and still qualifies VCORX as a low-cost fund. The 30 SEC yield is 4.6%.
Vanguard Dividend Appreciation Index Fund Admiral Shares (VDADX)
VDADX is an index fund based on the S&P U.S. Dividend Growers Index. The index is made up of high-quality, large-cap stocks that have an established history of increasing their dividends. VDADX essentially tracks the index and provides the same returns, minus the low 0.08% expense ratio.
Investing in stocks with superior yield growth is a proven retirement investment strategy. Companies that can afford to increase their dividends are generally stable and reliable firms that are confident in their ability to produce positive results.
Growing dividends also provide investors with a hedge against inflation, which is very important when thinking about retirement. The current 30-day SEC yield for VDADX stands at 1.8%.
Vanguard Long-Term Treasury Index Fund Admiral Shares (VLGSX)
U.S. Treasury bonds are among the safest investments in the world. That’s because their interest and principal payments are backed by the full faith and credit of the U.S. government. This very conservative asset class has a place in most retirement accounts.
VLGSX tracks the Bloomberg Long Treasury Index and has a current 30 Day SEC yield of 4.2%. As the fund’s (and the index’s) name implies, VLGSX invests in government bonds with maturities of between 10 to 30 years. Typical of Vanguard index funds, VLGSX features a very low expense ratio of only 0.07%.
This fund is appropriate for retirement investing, but it is sensitive to moves in the interest rate market. The fund price tends to fall as rates rise and rise as rates fall. Because of this volatility, investors should strongly consider reinvesting their dividends during the accumulation phase.
Vanguard Explorer Fund Investor Shares (VEXPX)
Small-cap stocks offer excellent growth opportunities. Smaller companies are often more innovative than their bigger counterparts and have more room to grow over time. Small-caps are more aggressive than large-caps, but, when used prudently, can be great retirement investments.
VEXPX invests in small and midsized companies that managers view as having superior growth potential. To mitigate some of the risks associated with investing in smaller companies, Vanguard employs multiple advisors (portfolio managers) and makes sure the fund is highly diversified. In fact, VEXPX currently holds over 500 individual stocks.
Vanguard doesn’t recommend VEXPX as a core holding. The fund is best used as a complement to a balanced retirement portfolio. The active management of this fund accounts for the 0.45% expense ratio, which is not high by industry standards but is somewhat high compared to other Vanguard funds.
Vanguard Global Wellington Fund Admiral Shares (VGWAX)
VGWAX differs from others on our list because it invests in U.S. and foreign stocks as well as U.S. and foreign bond issues. International investing can be volatile and, as such, should be avoided by investors who can’t accept the risks. Younger investors or those who can afford to be more aggressive, however, should consider VGWAX.
This fund is highly diversified geographically as well as by the industrial sector. This is an important feature because the diversification serves to counteract the volatility that’s inherent in global investing. In other words, no single stock or bond will have an outsized impact on the overall portfolio.
VGWAX has an expense ratio of 0.37%, which is very reasonable for a multiple-asset, international fund.
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The 7 Best Vanguard Funds for Retirement originally appeared on usnews.com
Update 01/03/24: This story was previously published at an earlier date and has been updated with new information.
