Best Vanguard Funds for Every Stage of Your Life (2023)

You’ve heard Vanguard funds are the best. But why? Which Vanguard fund is right for you?

In this guide, I’ll identify the best Vanguard funds for every stage of your life, from college grads to seniors.

Whether you want to grow your investment or protect your retirement, I’ll show you the ideal Vanguard fund based on data.

What is Vanguard Investments?

Once upon a time, there was a guy called John Bogle. In 1976, he created an investment management firm and called it Vanguard.

Vanguard has a simple but revolutionary idea: save people money by lowering fees. 

To lower fees, he tracked the index of the top 500 stocks on the stock market instead of hiring smart people to “pick” stocks.  This fund, the Vanguard 500 Index Fund, is the very first index fund. And it still exists today.

Since then, Vanguard has introduced thousands of index funds saving customers hundreds of billions of dollars.

Funds with high fees (i.e., high expense ratios and management fees) add up over time and hurt your investment’s growth. Robert Hiltonsmith, independent researcher at the think tank Demos, estimated that

On average, an American family loses $155,000 in potential gains due to unnecessary fees. 

Why are Index Funds Popular?

When you buy index funds, you’re not trying to beat the market; you are tracking the market, that’s why they’re passively managed funds.

The opposite of an index fund is an actively managed fund where people make bets on what to buy and sell to beat the market. 

It turns out very few people can beat the market every year. And nearly nobody can beat the market over the long run.

So index funds are popular not only because they’re cheaper but also because they have better performance in the long run.

Index funds are also preferable because they have broad diversification and low trading frequency. 

So when you buy index funds and hold it for a long time, you’re maximizing your growth, owning a diverse portfolio, and facing less volatility.

Nobody Can Beat the Market

A lot of people think they’re super smart, but practically no one is consistently successful at picking stocks that beat similar index funds. 

That’s right: being extremely educated, famous on CNBC or having a viral blog does not make you a better stock picker.

A New York Times article in 2022 said it brutally, “Who routinely beats the stock market? Not one of 2,132. No actively managed stock or bond funds outperformed the market convincingly and regularly. Index funds have generally been better.”

A team of analysts selected 25% of the mutual funds with the best performance over 12 months through June 2018. Then, the analysts asked how any of those funds remained in the to quarter for the 12-months through June 2022.

The answer was none.

A similar report in 2014 only found that 2 out of the nearly 3,000 funds beat the market five years later.

There’s always an exception to the rule, of course. But if you want to make bets, you’d want to put most of your money in index funds because it beats 99.95% of the actively managed funds out there.

Mutual Fund vs. ETF, Which is Better? 

Index funds can be mutual funds or exchange-traded funds (ETFs). Think of mutual funds and ETFs as cousins; they’re structurally different but similar in most ways that matter. 

For many popular index funds, there is usually a mutual fund and an ETF that is equivalent to it. 

If your money resides within a 401K, most likely you’ll be buying mutual funds. Unlike ETFs, mutual funds allow you to buy fractional shares and you can more easily set up automatic payroll deposit and dividend reinvestments.

Mutual funds can only be purchased and sold once a day, but ETFs can be bought and sold at any time. 

But if your money resides outside of a 401K, for the most part, ETFs and mutual funds are interchangeable.

Index Funds vs. CDs vs. Picking Stocks

There’s a stereotypical saying that Millennials love index funds. Baby boomers love savings accounts, but Gen. Z love to pick stocks themselves. The truth is, you can find people across generations who prefer either.

Some people practically use index funds as savings accounts. It’s a practice that makes others cringe because it feels utterly reckless, and makes some feel bored because it doesn’t maximize growth overnight.

Baby boomers, having lived through multiple recessions, are naturally wary of stocks who wipe away years of hard work. Plus, they grew up during an era where savings accounts have treated them well. For decades before 2008, just putting your money into a CD can return a steady +4% return.

Millennials, on the other hand, lived most of their lives in a time when interest rates are near 0%. In some sense, millennials have no other alternatives because CDs and bonds give then no returns…that is, until 2022 when inflation forced the government to increase interest rates again.

Gen Z became adults after the 2008 recession when the United States when on a growth ride for more than a decade. Most of Gen Z do not understand that stocks could actually collapse! As a result, they heavily invest in meme stocks and crypto that could double over night. Gen Z thinks index funds are weak because they don’t grow fast enough.

That is, until 2022… when interest rates rose and meme stocks collapsed.

We are now back to prudent investing.

Why Vanguard Index Funds?

Since Vanguard’s success, many firms have introduced index funds, including large brokerage firms like Fidelity and Charles Schwab.

Is Vanguard still the best place to buy index funds today? Why must we invest with Vanguard?

The answer is yes, Vanguard index funds are still the best, here’s why.

Vanguard is Owned by Its Funds

The most important reason to choose Vanguard over other investment management firms is Vanguard’s ownership structure.

Vanguard is neither a private or public company; it is a credit union, which is kind of like a coop.

Vanguard’s mutual funds own Vanguard Investments. If you buy a Vanguard mutual fund, then you own apart of Vanguard.

What does this mean? Well, it means Vanguard will always work to maximize the value of its mutual fund and ETF holders, i.e., YOU.

On the other hand, Fidelity is a private company owned by the Johnson Family, and Charles Schwab is a public company owned by shareholders. 

As such, Fidelity’s goal is to maximize the return to the Johnson family, and Schwab’s goal is to benefit its shareholders.

If a choice helps the owners but hurt its mutual fund customers, Fidelity and Schwab will not hesitate to protect its owners over its customers. 

Vanguard Profits Always Lower Fees

Vanguard has lower expenses because it is the core essence of the company. If Vanguard makes more profits, the profits will go back to its owners in the form of better funds and lower fees.

Every company is out to make money for its owners, Vanguard’s owners happen to be its customers. So there’s zero conflict of interest.

In theory, happier customers create more profits. But we have seen too many scams in the financial industry that we don’t want to gamble our money with companies whose owners may get greedy from time to time.

What are the Best Vanguard Funds?

Vanguard has the most mutual funds and the second most ETFs of any brokerage firm in the world. 

So without further ado, let me introduce the best Vanguard funds for any stage of your life.

These funds have low fees, broad diversification, and consistent performance. Out of thousands of Vanguard funds, below are the best.

VTSAX: The ONLY Vanguard Index Fund You Need from Cradle to Grave

How many funds do you need to create a perfect portfolio? Many people argue that you only need this one Vanguard index fund your entire life! 

This index fund is VTSAX: Vanguard Total Stock Market Index Fund. Here’s a description of it: 

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Really? Is one index fund enough? Can the investment be THIS easy?  Yes, and here’s precisely why:

1. At 0.04%, VTSAX has the lowest fees. In a world where 0.25% is considered good enough, 0.04% is an extreme bargain.  
   
2. VTSAX has extreme diversification. It tracks the entire US stock market, from healthcare, tech, consumer staples, to financial services, from Fortune 50s to recently IPO’d stocks. 
   
3. While VTSAX tracks the U.S. stock market, it provides plenty of international exposure. Over 40% of U.S. company revenues come from outside of the U.S. So even as emerging markets gets richer, VTSAX still wins.
   

Lots of people support this single index fund portfolio recommendation.

JL Collins recommends this strategy in his #1 retirement best selling book The Simple Path to Wealth. In the book, he suggests that as long as you have enough cash to last a few years (or 12% of your portfolio), you can invest the rest of your money all into VTSAX.

If you pour your money into VTSAX, you are already doing better than most of the Americans on retirement planning. 

VFIAX: The Only Other Vanguard Fund You Need from Cradle to Grave

The second index fund you should buy after VSTAX is the VFIAX, or Vanguard S&P 500 Index Fund.

This fund tracks the largest 500 public companies in the U.S.

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Here’s a little secret: VTSAX and VFIAX are 75% the same because the 500 largest companies own 75% the entire U.S. stock market. 

VTSAX (total US market) is slightly riskier than VFIAX (S&P 500) but should give you marginally better returns over a long period. If you’re more conservative or care more about preserving your wealth rather than growing it, then VFIAX (S&P 500) is a better choice.

If I had to choose one out of the two, I’d pick VTSAX (Total Stock Market) because I want to grow my money. But when Warren Buffett is asked what he’d recommend his kids do with his money, he recommended them to buy the Vanguard S&P 500. Buffett explains:

“A low-cost fund is the most sensible equity investment for the great majority of investors. If you periodically deposit your money into the Vanguard S&P 500, you can outperform most investment professionals.”

If you are wealthy, consider the S&P 500. It is more stable. For most of us, there is nothing wrong with investing in both. I do that for myself and my parents. 

Best Vanguard Funds for Young People Decades Away from Retirement

People have wildly different theories about which asset class will outperform others in the long term. Some speculate that healthcare stocks will win and others estimate tech will continue to dominate. Some want to focus on real estate and others want to bet on China. For the most part, these theories are pure speculations with little evidence.

There is, however, hard evidence suggesting that over the long term, small-cap-value stocks will outperform.

What are Small-Cap-Value Stocks?

A small-value-cap company is a company that: 

• Has a market cap less than $2 billion.
• Shows a price-to-earnings ratio (P/E ratio) less than 20.0
• Exhibits a price-to-book ratio (P/B ratio) less than 2.0
  

The chart below showed that from 1928 to 2016, the S&P 500 index grew at an annual rate of 9.7% while the small-cap-value index grew at 13.5%.

Such a significant gap in performance over such a long time makes small-cap-value stocks extremely attractive. 

But there is a downside to all of this.

The Small-cap-value stocks are highly volatile. During a recession, a small-cap-value index fund can drop by 50% or more..

During periods of growth, small cap value can underperform large growth stocks for over a decade, whcih is what happened in the decade since 2008.

Thus, small-cap value is not for the impatient or the faint-hearted. And not for those nearing retirement as a single recession or growth period can wipe out half of your nest egg, leaving you to wait another decade to recover.

But as long as you have the patience to see through the bad times, through multiple recessions, then small-cap-value stocks will reward you in the long run. 

Best Vanguard Funds for Small-Cap-Value Stocks: VSIAX, VRTVX, and VSMVX

Creating a fund for small-cap-value stocks can be tricky. For starters, there’s no right definition on “small” and “value.” Maintaining a small-cap-value list requires more effort because a small company can change a lot from quarter to quarter. 

As a result, Vanguard has three different index funds tracking three different small-cap-value indices: 

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Please note: 

1. They were all introduced after 2011 or after the 2008 recession, so in the grand scheme of things, they are still relatively young funds.
2. If you need a mutual fund, your only option is option 1. Others have a $5 million minimum. But you can buy their ETF equivalents instead. 
3. The P/E and P/B ratios of all three funds are roughly the same, suggesting all three funds are equally “value-driven“.
4. The median market cap of option 1 is twice that of options 2 and 3, so companies in option 1 are larger.

Because option 1 has a higher median market cap, many bloggers do NOT recommend VSIAX as it is not small enough and thus won’t grow as much in the long term.

For the same reason, many bloggers recommend option 3 (VIOV) because it has the lowest median market cap – it is the most small.

I don’t think we know enough to conclude right now. It’s true that option 1 has larger companies, but it is also cheaper and has a longer track record of reliable performance.

I have my money invested across all three small-cap-value Vanguard funds.

In an imperfect world, we need to get the big stuff right and ignore the noise. If you are young and want to grow your money, consider allocating some of your investments to a few small-cap-value index funds. 

Best Vanguard Funds for Older Folks Near or In Retirement

As folks move toward retirement, they become less risky and more conservative. They care less about growth and more about preserving wealth and generating income.

For those before the age of 70 or during the early phase of retirement, I recommend retirees keep 60% of assets in stocks. For those after the age of 70 to 75, I still recommend holding 40% in stocks.

I don’t recommend retirees holding international stocks because there is little evidence that they perform better in the U.S. market. There’re many reasons why that’s the case, and I won’t get into it here. Of course, this could change as the. world revolves, but retirees only need to worry about the next 20 years, and I don’t see this changing any time soon. 

My recommendations are more aggressive than Vanguard’s below, which recommends less than 60% stock allocation upon retirement.

Your ideal allocation depends on your personality (do you like risk? can you remain calm under financial turmoil?), wealth (can you afford to lose a lot?) and income needs (how fancy are your retirement needs?). This is an incredibly personal decision, so learn all the. rules, but decide for yourself. 

Regardless of how much you want to allocate to stocks, what are the best ETFs and mutual funds for retirees?

Answer: they are balanced funds. Those with a mixture of stocks and bonds. Here are the best Vanguard funds for retirement:

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I’ll explain each in detail below, and tell you which one I picked for my parents. 

VBIAX, the Most Straight Forward Fund of Fund: Vanguard Balanced Index Fund

The Vanguard Balanced Index Fund (VBIAX) is simple: it allocates 60% to the Vanguard Total US Stock Market index fund and 40% to the Vanguard Total US Bond Market index fund. 

Because it is an index fund that invests in other index funds, it’s a fund of a fund.

In this case, simple is good! VBIAX is one of the best-performing funds of all Vanguard funds with a 60/40 stock-to-bond split.

 It outperformed similar Vanguard Target Date funds and Vanguard LifeStrategy funds, a key reason why I’d always recommend a Balanced over a Target Date fund for early retirees.

I also like that VBIAX only tracks the U.S. market. The U.S. market provides plenty of international exposure, as discussed above, and at least in the near term, the U.S. market delivers superior returns.

In fact, the VBIAX is out-performing SPY (Total US Stock Market) Returns in the two recession cycles outlined below. While this is just a snapshot in time, so don’t take it as an indication that all-stock allocation is the same as a balanced fund. But in the past 20 years, it seems to be that they’ve performed equally well. And that is crazy considering one has 100% stocks, and the other only has 60%.

VSMGX, the Fund of Fund with International Flavor: Vanguard LifeStrategy Moderate Growth

The Vanguard LifeSrategy Moderate Growth (VSMGX) also has 60% stocks / 40% bonds, but it directly invests in the international market. 

And because the international market has not performed as well as the U.S. market, the performance of VSMGX is not as good as that of VBIAX above. 

Some people really want true international stocks and bonds to diversify, and if so, then VSMGX is your best bet. 

VWENX: The ONE Active Fund Every Retiree Must Consider (It Outperforms Index Funds!)

If you haven’t heard of Vanguard Wellington, you should. It’s famous and the main fund I buy for my parents as they inch toward retirement. 

VWENX (admiral shares of the fund) is my all-time favorite fund for retirees and here’s the real shocker: Vanguard Wellington is an actively managed mutual fund!

I wrote a whole piece above about how passively managed index funds always win over actively managed funds.

But for every rule, there is an exception, and Wellington is the outlier.

The Wellington Fund began in 1928 as one of the earliest balanced funds and joined Vanguard in 1975. Most funds do not last a few years and even fewer last more than a decade.

Wellington has lasted nearly a century and still going strong!

 The Wellington Fund does three things well:

1. It’s good at conserving capital
   • In 75 years, the Wellington fund has never dropped by more than 20% a year even during the worst recession.
2. It provides a reasonable income
   • Today, the Wellington fund yields a respectable 2.56% return from dividends alone.
3. It produces profit without undue risk
   • Over 75 years, the Wellington fund has averaged a 7% return.

Wellington Fund: Consistent Growth AND Income?

For a balanced fun to consistently achieve double-digit growth is impressive. In fact, consistency is the hallmark of the Wellington fund.

Many wealthy retirees (particularly rich widows) have their entire investment portfolio siting with Wellington.

While I wouldn’t go as far as recommending you to go all-in in Wellington, it suffices to say that retirees LOVE this fund.

And why wouldn’t they? A fund that delivers consistency, growth, AND income since 1929 is a fund I can believe in.

So if you’re early in your retirement, consider either the Balanced Fund (described above) or the Wellington Fund.

If you want to learn more about the Vanguard Wellington Fund and how to buy it, be sure to read my guide: Vanguard Wellington Fund (VWELX): Retirees’ Favorite.

Best Vanguard Funds for the Risk-Averse, the Wealthy, and the Very Elderly

Maybe you are heading into your 70s and want to be more conservative. Perhaps you’re wealthy and want to preserve your money more than growth.

For people who want a more conservative portfolio below 60% stock, I recommend these three Vanguard funds:

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VPGDX, The Only Fund with Alternatives and Commodities: Vanguard Managed Payout Fund

The Vanguard Managed Payout Fund is designed to generate regular monthly retirement income without exhausting capital. It targets an annual distribution of 4%, but note the 4% is a target, NOT a guarantee.

Here’s what’s interesting about this fund. It’s relatively aggressive in stocks (55%) even though it focuses on income and not growth.

It’s able to afford the high stock concentration because it also invests 25% in commodities and alternatives, both are relatively uncorrelated to stocks.

Personally, I’m not a huge fan of this fund because I don’t believe in commodities and alternatives. But plenty of people, including many famous hedge funds and even Tony Robbins advocate mixing some commodities and alternatives with your stocks and bonds. They could be right; there’s just no long-term evidence that they are right, in my personal opinion.

But if you’re a huge fan of this kind of thinking, then this fund is for you. Note that this is a actively managed fund, not an index fund. And that’s why the fee is relatively higher at 0.31%.

VWIAX, Wellington’s Conservative Twin:  Vanguard Wellesley Income Fund 

The Wellesley Fund is like the Wellington Fund, except even more conservative. Both are actively traded and tend to favor high-quality bonds and blue-chip, high-dividend stocks. 

Vanguard Wellesley Income Fund has been around for 40 years. It only allocates about a third to stocks and the rest to bonds. But despite its low stock allocation, it has achieved impressive growth since its inception in the 1970s.

Wellesley’s volatility is incredibly low. It has only had seven years with losses and all were under 10%, with the most recent loss in 2022.

The S&P 500, in contrast, has had 12 years of losses, the largest -38% loss occurred in 2008. Meanwhile, Wellesley only lost -9.84% in 2008.

Like Wellington, Wellesley primarily invests in the U.S. stock market, which has plenty of international exposure. 

Investors obsessed with index funds often make an exception to buy Wellesley. I invest a sizable portion of my parent’s retirement in the Wellesley Fund.

VSCGX, the 40% Stock/ 60% Bond Fund of Fund, Vanguard LifeStrategy Conservative Growth

The Vanguard LifeStrategy Conservative Growth Fund is, you guessed it, a more conservative version of the Vanguard LifeStrategy Moderate Growth Fund. 

This fund is another fund of the fund and invests 40% in stocks across both the U.S. and international equity markets and 60% in bonds also both in the U.S. and internationally. 

Notice that despite having more stock than Wellesley, this fund did not perform as well in the past ten years, likely due to its international investments. For this reason alone, I prefer Wellesley or the Vanguard Managed Allocation Fund over LifeStrategy Conservative Growth.

My hypothesis is that it is much easier to just track the index fund for stocks. But with bunds, because it reacts to the Fed more than market, it’s hard to “passively invest” and that’s wy some of the actively traded funds with lots of bonds and alternatives are winning.

Having said that, this fund has a low fee and its long-term growth has still been respectable.

Best Vanguard Funds: Summary

Vanguard has thousands of mutual funds and ETFs. It can be daunting and confusing to decide which one you should buy into. 

But as you’ve seen from this guide, I’ve picked out the best performing funds for you with the lowest fees. And often, the simplest solution is the best solution, and the best funds may not always be index funds.

A great investment strategy is a mental game. You don’t have to be technically skilled to grow your money. You need to be patient and get the basics right.

When all else fails, investing in the Total US Stock Market or the S&P 500 are great options that will get you 80% there. 

If you are young and hungry for growth, pick small-cap-value funds. However, be prepared to have the patience and faith to wait decades through wild swings of ups and downs. 

Retirees should hold at least 40% of stocks. Surprisingly, the best Vanguard funds for retirees are actively managed. These funds have decades of proof of outperforming index funds. If ardent index fund supporters often make exceptions for Wellington and Wellesley, you ought to consider them, too.

• The ONE fund you need from the cradle to the grave:
  • VTSAX: Total US Stock Market, VFIAX: S&P 500
• Best Vanguard Funds for Growth (Small-Cap-Value)
  • VSIAX, VRTVX, VSMVX
• Best Vanguard Funds for Early Retirement (60% Stock)
  • VBIAX: Vanguard Balanced Index Fund, VWENX: Vanguard Wellington Fund, VSMGX: Vanguard LifeStrategy Moderate Growth
• Best Vanguard Funds for Conservatives (40% Stock)
  • VPGDX: Vanguard Managed Payout Fund, VWIAX: Vanguard Wellesley Income Fund, VSCGX: Vanguard LifeStrategy Conservative Growth

Got any more questions or thoughts? Comment below and let me know! 

What’s Next?

Have you heard of the Vanguard Wellington Fund? Learn why the Vanguard Wellington Fund (VWELX)is a Retirees Favorite

Scared for your stock investments and wondering when you should pull out? Read Will the Stock Market Crash? Complete Analysis

Seriously considering putting your money into Betterment? Read Betterment Review and Investing Guide of 2019.