Best Vanguard Funds for 2015
Choosing the best of anything is by definition subjective. This is especially true when evaluating investments such as mutual funds because
each investor has their own criteria for what is best for them. With that in mind, here is a short list of the best Vanguard equity funds for
2015 screened for Morningstar ratings of four or five stars, a minimum investment history of 10 years, and the highest-returning fund in each
of Vanguard's risk categories of 2, 3, 4, and 5. Category 5 equates to the highest risk but highest potential total return, Category 2
represents the lowest risk of this group with lower expected returns. All funds are currently open to new investors.
Risk Category #2 - Vanguard Target Retirement Income Fund (VTINX)
Vanguard's Target Retirement Income fund is geared for investors who are currently retired. The focus is on income-producing investments but also has some assets in growth areas. Five separate Vanguard index funds are used to generate the portfolio returns. The asset allocation targets a mix of 70% bonds and 30% stocks.
The five index funds that make up the portfolio include modest amounts of international stocks and bonds, so there is a small amount of risk regarding global economics. Another of the funds in the portfolio is the Short-term Inflation-Protected Securities Index fund, which is designed to be a hedge against higher inflation.
Since the fund is passively managed, the expense ratio is extremely low at 0.16%, which is much less than half the peer group's average expense ratio. It has earned a 4-star rating from Morningstar. Its 10-year annualized return is 4.96%, virtually identical to its benchmark index's 4.99% return. There is a $1000 minimum initial investment for IRAs and general accounts.
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Risk Category #3 - Vanguard Wellington Fund (VWELX)
Vanguard Wellington Fund has been one of the great mutual funds in the United States and perennially delivers superior returns, so it's no surprise this is one of the best overall Vanguard funds. What is remarkable is that annualized returns are comparable or surpass returns of growth or aggressive growth mutual funds with category 4 and 5 risk.
Being actively managed means the portfolio is much more concentrated than passive index funds, which means its consistently higher returns are due to superior management. Wellington fund is one of the few actively managed funds to outperform the S&P-500 Index over the past 10 years. Wellington's expense ratio is 0.26%, which is extremely low for an actively managed fund and less than half that of its peers. It has earned a 5-star rating from Morningstar. Its 10-year annualized return is 6.98% compared to its benchmark index's 6.40%. The minimum initial investment is $3000 for IRAs and general accounts.
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Risk Category #4 - Vanguard Dividend Growth Fund (VDIGX)
Vanguard Dividend Growth fund invests primarily in common stocks with the ability and commitment to increase dividends on a regular basis over the long term. The fund invests across all industries and may invest in foreign companies. While dividends are the focus of the fund, the yield is not as important as seeing dividend increases by most or all of the companies in the portfolio. With a current yield of only 1.96%, this fund isn't geared as much toward investors seeking current income as it is geared toward investors who want growth of their income stream from year to year.
The fund's expense ratio is 0.32%, which is more than two-thirds lower than its peers and extremely low for an actively managed fund. It has earned a 4-star rating from Morningstar. Its 10-year annualized return is 8.44% compared with a 5.86% return for its benchmark index. The minimum initial investment is $3000 for IRAs and general accounts.
Risk Category #5 - Vanguard Health Care Fund (VGHCX)
Vanguard Health Care fund is known as a specialty fund, which is a fund whose investments are concentrated in one industry or sector. Health care is one of the more volatile industries in the market, so investors should be aware of the extra inherent volatility risk of single-sector investing. The risk is that a particular sector may experience a bear market while the general stock market is enjoying a bull market. However, potential gains are much greater if that sector experiences a boom period while the general market lags behind.
The fund is actively managed and currently holds only 83 stocks, which is slightly more than half the number of stocks in its benchmark index. So there is also a portfolio risk due to one stock having more impact on the total return than it would in a broadly diversified fund.
The fund's expense ratio is 0.34%, which is only one-fourth the expense ratio of its peers. It has earned a 4-star rating from Morningstar. Its 10-year annualized return is 11.82%, far surpassing the 8.83% return of its benchmark index.
Vanguard Group consistently offers funds that are both highly rated in the mutual fund community and deliver solid returns as well. No matter what your risk tolerance, Vanguard has a fund that will provide you with risk-adjusted returns above those of many of its competitors.
Updated on 10/27/2015.