Vanguard is an unquestioned industry leader in no-load mutual funds and low-cost exchange-traded funds. But what are Vanguard index funds, and why are they so popular with investors?
See: 3 Things You Must Do When Your Savings Reach $50,000
About Vanguard Index Funds
First, it helps to understand what an index is. Put simply, it’s a grouping of stocks based on certain criteria. For example, the Dow Jones Industrial Average is an index that tracks 30 blue chip stocks. Index mutual funds are funds that map to a specific market index, such as the DJIA, S&P 500 or Russell 2000.
Some funds invest in an entire index, while others only invest in a sampling of a given index. In either case, index funds give investors a diversified portfolio that is managed on their behalf.
Vanguard’s index funds are known for being cost-effective and bringing consistent long-term returns that outperform peer-group averages. Here’s what you need to know if you’re interested in looking deeper into a Vanguard index fund.
What Are the Best Vanguard Index Funds?
Vanguard has over 130 index mutual funds, suited to all types of investors. Some feature low minimum investment amounts, whereas others require more money. Here are some of the best and most popular Vanguard index funds:
- Vanguard 500 Index Fund Admiral Shares (VFIAX)
- Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
- Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
- Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
- Vanguard Long-Term Corporate Bond Index Fund Admiral Shares (VLTCX)
- Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares (VICSX)
- Vanguard Real Estate Index Fund Admiral Shares (VGSLX)
- Vanguard Large-Cap Index Fund Admiral Shares (VLCAX)
1. Vanguard 500 Index Fund Admiral Shares (VFIAX)
This broad index fund is a low-cost way for investors to enter the U.S. equities market. It is based on the S&P 500 index, meaning it invests in 500 of the country’s largest companies across multiple industries.
- Minimum investment: $3,000
- Expense ratio: 0.04%
- Average 10-year return: 11.99%
2. Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
The Total Stock Market Index Fund is a well-diversified, low-cost fund that exposes investors to the entire U.S. equities market.
- Minimum investment: $3,000
- Expense ratio: 0.04%
- Average 10-year return: 11.43%
3. Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
The Total Bond Market Index Fund focuses on investment-grade bonds such as mortgage-backed securities and U.S. treasuries.
- Minimum investment: $3,000
- Expense ratio: 0.05%
- Average 10-year return: 1.79%
4. Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
The VTIAX focuses on companies in developing, emerging economies. It is also available as an exchange-traded fund.
- Minimum investment: $3,000
- Expense ratio: 0.11%
- Average 10-year return: 4.09%
5. Vanguard Long-Term Corporate Bond Index Fund Admiral Shares (VLTCX)
This corporate bond index fund focuses on long-term bonds issued by industrial, utility and financial companies with maturities greater than 10 years. Interest-rate changes affect the value of these long-term bonds, so investors might experience price fluctuations depending on the market rates.
- Minimum investment: $3,000
- Expense ratio: 0.07%
- Average 10-year return: 3.83%
6. Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares (VICSX)
Similar to the long-term corporate bond index fund, this intermediate-term fund also invests in industrial, utility and financial companies, but with a focus on bonds with maturities of five to 10 years. Though their terms are shorter, intermediate-term bonds are also subject to fluctuating values based on current interest rates.
- Minimum investment: $3,000
- Expense ratio: 0.07%
- Average 10-year return: 3.11%
7. Vanguard Real Estate Index Fund Admiral Shares (VGSLX)
Real estate can be a great thing to invest in during stock market downturns. This fund invests in real estate investment trusts that typically buy hotels, retail centers and office buildings.
- Minimum investment: $3,000
- Expense ratio: 0.12%
- Average 10-year return: 7.36%
8. Vanguard Large-Cap Index Fund Admiral Shares (VLCAX)
This fund invests in companies in the top 85% in terms of market capitalization. Over 40% of the fund’s holdings are technology and consumer discretionary stocks.
- Minimum investment: $3,000
- Expense ratio: 0.05%
- Average 10-year return: 11.90%
How To Invest In Vanguard Index Funds
There are multiple ways you can invest in Vanguard index funds, including the following:
- Directly through Vanguard
- Through a retirement account
- By buying and selling Vanguard index funds on the open market using their ticker symbols
Once you’ve reviewed the best Vanguard index funds, connect with a financial advisor to help you navigate your options and choose which funds work best for you. If you’re ready to invest, here’s how to go about it.
Choose the Right Index Fund
Before you select an index fund, take a look at a list of Vanguard index funds and consider these metrics:
- Minimum investment: The minimum amount you can invest to buy the fund
- Price per share: How much a single share costs
- Average return: The percentage gain or loss over a set period of time
- Fees: What you will have to pay Vanguard for managing the fund
You can invest based purely on the above metrics, or you can invest in something you believe in. For instance, some index funds focus on companies that consider environmental, social and governance issues, better known as ESG. These funds tend to invest in stocks that prioritize social responsibility and sustainability.
Good To Know
Another option is investing toward a target. For example, the Vanguard Target Retirement Funds are designed to help you invest for retirement based on factors such as your age and financial needs. These can be particularly beneficial to those who want a low-cost, passive retirement platform because Vanguard index funds are rebalanced periodically to account for that target retirement date.
How To Open a Vanguard Account
Once you know which index fund you want, it’s time to open a Vanguard account. Just like with bank accounts, you’ll need to provide the following information:
- Name, mailing address and other identifying information
- Current employer’s name and address
- Bank account number and routing number
The process can be completed entirely online by taking the following steps:
- Go to Vanguard.com.
- Decide which mutual funds you want to buy.
- Choose the type of account (e.g., general investing, retirement, college savings).
- Fund your account electronically.
You can begin investing three to seven days after opening your account — perhaps sooner if you register to accept documents electronically, which also saves on service fees.
Keep in mind that mutual fund trading is a little different than stocks, which trade on the secondary market. When you trade mutual funds, you trade with the fund itself, and your transaction isn’t executed until after the market closes at 4 p.m. ET.
Should You Invest In Vanguard Index Funds?
One benefit of investing in a Vanguard index fund is that it doesn’t need to be actively managed. At the same time, it might not have some of the soaring yields of other, higher-risk options. Because you are tied to a specific index, you could experience dramatic losses if that index drops.
Index funds are an excellent addition to a diversified portfolio — as long as you balance them out with other types of investments. As with other investments, be sure to consult with your financial advisor before putting money into index funds to help ensure the best results.
FAQ
Vanguard has over 130 index mutual funds to choose from, which makes it hard to decide which is best for you. These frequently asked questions will help you narrow your choices.- What Vanguard funds beat the S&P 500?
- That depends on what time period you look at. The S&P 500 has returned 10.01% per year, annualized, over the last 10 years. That average includes one-, three- and five-year returns of 20.10%, 7.97% and 13%, respectively, so the funds that outperform it one year might not outperform it the next. However, several funds GOBankingRates looked at, including Vanguard 500 Index Fund Admiral Shares, have had 10-year annualized returns of more than 10.01%.
- Which index funds give the best returns?
- The sheer volume of funds available and the variability of their returns from one year to the next make it difficult to know which give the best returns overall. However, growth funds are one category that could produce high returns over the long term. For example, the Vanguard Growth Index Fund Admiral Shares fund has gained 13.97% a year, annualized, over 10 years.
- What is the best index fund to invest in now?
- The best one for you depends on your investing goals and risk tolerance. Conservative funds such as high-quality bond funds have less risk but generally produce smaller returns. Stock funds, especially growth funds, are riskier but can produce larger returns. A good compromise might be an S&P 500 fund or a dividend index fund that invests in large-cap companies.
Daria Uhlig contributed to the reporting for this article.
Data is accurate as of Jan. 14, 2024, and is subject to change.
Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.
This article has been updated with additional reporting since its original publication.