Our curated rankings of the top Vanguard mutual funds were created by screening funds for several must-have metrics.
Total assets: Every Vanguard fund on this list has accrued at least $1 billion in AUM for its share class. When it comes to funds, a high AUM is a good sign of investor confidence, an economy of scale and general popularity.
Expense ratios: All Vanguard funds on this list have a net expense ratio of 0.15% or lower. “Cost is important, as an expense ratio comes directly out of the performance that an investor will experience,” Dusina says.
Broad diversification:Equity funds on this list must have exposure across more than one market cap size, most of the 11 market cap sectors and a blended equity style (growth and value). Fixed-income funds must encompass both government and corporate issuers, hold investment-grade (BBB or higher) bonds of all credit qualities and index bonds of all maturities.
Excludes certain fees: No Vanguard mutual fund on this list charges any purchase, redemption or 12b-1, sales load or commission fees.
Passively managed: All Vanguard mutual funds on this list track the returns of an underlying benchmark index and do not actively manage their holdings based on the fund’s manager’s strategy or a quantitative methodology.
An experienced fund analyst selected the funds above, but they may not be right for your portfolio. Before purchasing any of these funds, do plenty of research to ensure they align with your financial goals and risk tolerance.
Why other funds didn’t make the cut
The criteria excludes more costly funds that are either actively managed or niche when it comes to their holdings, such as being restricted to growth stocks, small-cap stocks, sector stocks, dividend stocks, or bonds of a certain maturity.
While these funds have their uses, investors looking for the best one-size-fits-all Vanguard fund might find them too narrow in scope for their investment objectives.
“Actively managed vehicles at Vanguard will generally charge a higher expense ratio, as greater expertise and time is required for research,” says Daniel Dusina, director of investments at Blue Chip Partners.
This exclusion decision stems from the results of the 2022 SPIVA Scorecard from S&P Dow Jones Indices, which compares the historical performance of actively managed funds with their passive index counterparts.
The latest SPIVA results show that 92.19% of all large-cap U.S. equity funds underperformed the S&P 500 index over 15 years ending June 30, with similar results for other equity styles and market caps.
Our rankings also excluded equity funds that do not have a broad focus in terms of sector, style and market cap representation. For example, funds that track equities solely from the financial sector were excluded.
Vanguard’s dividend, growth and value-focused funds were also omitted. Funds that target only a specific market-cap segment like small-cap or mid-cap equities were left out, too. For bonds, we excluded funds that hold only specific issuers like government or corporate bonds and those that track only specific maturities like short-duration bonds.
It’s important to acknowledge funds that didn’t make the cut are not inferior or undeserving of investment.
More niche funds like those excluded can be useful to investors with different investment objectives, such as tax efficiency, aggressive growth, steady income or preservation of capital. They also can be used to express a particular investment thesis on a sector, market cap or style or to hedge against certain macroeconomic changes.
This ranking intentionally focuses on broad-based Vanguard funds that are suitable holdings for a range of investors over a long time horizon.
The selected funds all feature broad diversification across sectors, geographies, market caps, issuers and maturities, making them excellent core building blocks for most investment portfolios.
Paul Peeler, financial advisor at Integrated Financial Group, agrees. “No matter the sophistication level of an investor, it’s hard to go wrong with just four Vanguard funds as a core for a portfolio,” he says. “VTSAX, VTIAX, VBTLX and VTABX, used in the proper proportions, can provide the maximum diversification that most investors will ever need.”
