How To Invest in Vanguard Mutual Funds

How To Invest in Vanguard Mutual Funds

With so much information out there, embarking on an investment journey can be confusing by design. Vanguard is a popular starting point for many new investors due to its accessibility and a wide range of low-cost and high-quality mutual funds.

And today, we will be exploring how to invest in Vanguard mutual funds and get into the details of the process.

What Are Vanguard Mutual Funds?

Vanguard is one of the largest issuers of mutual funds in the U.S. and the second-largest issuer of exchange-traded funds. It is well-known and respected for being the pioneer of index investing.

To construct the index funds, Vanguard uses a passive sampling strategy to replicate and track the benchmark index. For the management of the index fund, Vanguard charges expense ratios, which are known to be some of the lowest in the industry, with the average being 0.10.%

Most investors prefer index funds with low fees because this not only helps them gain exposure to the market but also gives them an opportunity to increase the returns over time.

Mutual funds

Mutual funds are investment funds that pool money from many investors to purchase securities such as stocks, bonds, and other assets.

The funds are professionally operated by money managers who are responsible for allocating the assets and attempting to produce capital gains.

Compared to investing in individual stocks, mutual funds present a lower risk.

Vanguard Asset Classes

Vanguard presents a large selection of mutual funds in the following classes:

  • Stock funds. These are funds that invest in stocks, commonly referred to as equity securities. Investing in stock funds can give you an opportunity to invest in companies from many industries.
  • Bond funds. These are mutual funds that invest in bonds. They can help balance out the risks involved in stock funds.
  • Target retirement funds. These are target-date funds that automatically adjust the direction of your investments as you near your target retirement date.
  • Money market funds. These are mutual funds that invest in short-term debt securities, such as the US Treasury.
Investing in Vanguard Mutual Funds is a main pillar of F.I.R.E. movement

Where To Buy Vanguard Funds

When it comes to buying funds, you can either choose to do it directly through Vanguard or a third-party brokerage firm.

If you already own an account at a third-party brokerage firm, you can easily find out if they offer Vanguard funds and purchase through them. However, it’s good to keep in mind that third-party brokerages tend to add fees and restrictions related to those purchases. That’s because it is not in the competitor firms’ interest to sell the funds with no additional costs if they also offer their own index funds.

Opting for a third-party firm can make it easier to track all your holdings through one account and build a portfolio in one company. It might also give you more options to choose from when it comes to active investing.

On the downside, this involves more expenses, which will reduce your long-term returns, and the selection of Vanguard funds will be limited.

You will make the most out of investing exclusively in Vanguard funds if you want to grow a portfolio that mainly involves Vanguard mutual funds.

How to Invest in Vanguard Mutual Funds

Beginners often start their portfolio with only one fund due to insufficient amounts of money to meet the initial minimum investment requirement. And although investing in one fund is not considered to be the best option from the point of view of diversification, Vanguard does offer some great options. To make your life easier, we are listing a few you can consider:

Vanguard Wellington Fund Investor Shares (VWELX)

This is the oldest balanced fund of the nation, with ⅔ allocated to stocks and ⅓ to bonds. It is a medium-risk fund that can be a good option for investors looking for long-term growth.

Minimum initial investment: $3,000

Vanguard STAR Fund (VGSTX)

This balanced fund is a great option for most beginning investors with long-term investment objectives and tolerance for moderate market risk. Invested 60% in stocks and 40% in bonds.

Minimum initial investment: $1,000

Vanguard Wellesley Income Fund Investor Shares (VWINX)

This relatively low-risk balanced fund allocates around ⅓ to stocks and ⅔ to bonds. Suitable for investors who have a goal of steady income and who are willing to accept lower average returns.

Minimum initial investment: $3,000

Vanguard Target Retirement 2050 Fund (VFIFX)

This target retirement fund decreases exposure to stocks and increases exposure to bonds over the years until the target retirement year is reached.

You might want to consider this fund if you’re planning to retire around the year 2052.

Minimum initial investment: $1,000

Passive Investing

Actively managed funds can lack consistency when it comes to beating their benchmark indexes. Active management fees and trading costs are higher than those of passive management. This presents a risk of unsatisfactory results.

Passively managed index funds, on the other hand, only track the benchmark index, so for most investors, this is a better option with less risk involved.

Vanguard offers a wide range of index funds, but here we highlight a few that are suitable for beginning investors:

Vanguard Balanced Index Fund Admiral Shares (VBIAX)

This medium-risk index fund invests 60% in stocks and 40% in bonds.

Appropriate for those beginning investors who have long-term investment plans.

Minimum initial investment: $3,000

Vanguard 500 Index Fund Admiral Shares (VFIAX)

This index fund will give you a low-cost exposure to 500 of the largest U.S. companies from different industries. Appropriate for investors with long-term goals and tolerance for medium-to-high risk.

Minimum initial investment: $3,000

Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)

This low-risk fund provides wide exposure to U.S. investment-grade bonds and invests in treasuries and mortgage-backed securities. The main associated risk is a decrease in bond prices in case of an interest rate increase.

Minimum initial investment: $3,000

Bottom Line

As we can see, Vanguard funds are some of the best mutual funds a beginner can choose because they make it incredibly easy. They offer an extensive range of funds with low ratios.

And now that you know how to invest in Vanguard mutual funds, you can begin investing with more confidence.

Disclaimer: The Content is an opinion and is for information purposes only. It is not intended to be investment or financial advice nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or any other assets. Seek a duly licensed professional for investment or financial advice.