The popularity of index funds—investment tools that mirror the performance of a market index—is often traced back to 1976. This is when John Bogle, the founder of Vanguard, launched the first publicly traded index fund. Over time, these funds became preferable over active investing, given the lower fees and likely returns they offer. Even today, investors turn to Vanguard when considering investing in index funds. That said, certain Vanguard funds perform better than others.
Popular Vanguard funds
1. Vanguard 500 Index Fund (VFIAX)
This is considered one of the most successful Vanguard funds. It is also the first index fund ever made publicly available to investors. VFIAX would normally be the preferred choice for an investor in the country trying to find a low-cost way to get into the equity market.
VFIAX tracks the performance of the S&P 500 Index, which has traditionally surpassed most large-cap funds. This 100% equity fund does not hold any bonds, so it is designed for investors with a high-risk tolerance. VFIAX also comes with a low expense ratio of 0.04%. A higher expense ratio indicates that a larger portion of the returns will be deducted as fees, reducing the overall gains, while a low expense ratio helps maximize returns. That said, this index fund requires an initial investment of $3,000.
2. Vanguard Balanced Index Fund (VBIAX)
Also considered among the best Vanguard funds, VBIAX invests 40% in bonds and 60% in stocks, offering investors a well-balanced mix of returns and risks. It carries an expense ratio of 0.07%. The fund tracks two indices—CRSP US Total Market Index and Bloomberg U.S. Aggregate Float Adjusted Index. While it has in the past offered inadequate returns, this is a rare occurrence. In the last decade, VBIAX offered 8.5% annualized returns before tax.
3. Vanguard Total Stock Market Index Fund (VTSAX)
This index fund tracks the CRSP US Total Market Index, offering full exposure to the country’s stock market. The index spans all 11 sectors and consists of large, mid, and small-cap stocks. That said, the fund is passive, maintaining 2.2% in turnover. VTSAX holds more than 3,600 stocks, making it a fairly diversified investment option. Another thing to note is that the fund leans toward large-cap stocks with a median market cap of $179 million.
4. Vanguard Total International Stock Index Fund (VTIAX)
VTIAX overcomes the major drawback of VTSAX, which is the lack of geographical diversification. VTIAX tracks the performance of an index that focuses on stocks issued by companies in developed and emerging markets, excluding the domestic market. With an expense ratio of 0.12%, coupled with 3.9% in turnover, VTIAX can be a worthwhile choice for buy-and-hold investors hoping to add international diversification to their portfolios.
5. Vanguard Growth Index Fund (VIGAX)
This fund enables a buy-and-hold strategy. It invests in big domestic companies with enormous growth prospects. Technology, financial services, and consumer services are some of the key sectors the fund targets. This area of focus can be a drawback for VIGAX, as such stocks may sometimes underperform the broader stock market. That said, this Vanguard fund is still a worthwhile, low-cost investment option.
6. Vanguard Small Cap Index Fund (VSMAX)
Index fund investment does not have to be limited to big companies. To account for small domestic companies, VSMAX tracks the performance of an index that focuses on the returns of small-capitalization stocks. This fund has a nominal expense ratio of 0.05%. It has returned 6.99% over the past decade and 5.86% over the last three years.
7. Vanguard Total Bond Market Index Fund (VBTLX)
VBTLX often features among the 10 best Vanguard index funds to buy now, as it offers broad exposure to domestic investment-grade bonds. It invests about 30% in corporate bonds and the remaining 70% in government bonds. The fund has an expense ratio of 0.05%.
8. Vanguard Total World Stock Index Fund (VTWAX)
Investors can opt for VTIAX and VTSAX to diversify their portfolios with a mix of emerging and developing markets. Further, when choosing these two funds, investors must decide how much of each they want in their portfolios. To eliminate the need for such consideration, investors can replace VTIAX and VTSAX with the global equity fund VTWAX. The fund offers exposure to foreign markets and is meant for investors willing to take on the risk of stock market volatility and currency and country risks. The fund comes with a 0.1% expense ratio and a portfolio turnover rate of 4.3%. It requires a minimum investment of $3,000.
9. Vanguard S&P 500 ETF (VOO)
This fund tracks the S&P 500 Index, which represents 500 of the largest domestic companies. VOO is one of the largest index funds in the market and trading for this fund started in 2010. It is among the top-rated Vanguard funds to invest in. Its expense ratio is nominal at 0.04% and its annualized return for five years is 16%, making it suitable for investors looking for a diversified index fund at a low cost.
10. Vanguard Russell 2000 ETF (VTWO)
This Vanguard fund tracks the Russell 2000 Index, a club of 2,000 of the tiniest publicly traded companies in the country. This ETF also started trading in 2010. With a 0.10% expense ratio and an annualized 5-year return of 9.4%, this fund is worth considering for investors seeking a low-cost fund that offers exposure to small-cap companies.