Founded by the late John ‘Jack’ Bogle, Vanguard is one of the largest investment firms in the world, and one of the few member-owned firms on the market. After first popularizing the index fund back in 1976, Vanguard has successfully sought to lower the outrageous investment fees of the 70s and 80s, and continues to evangelize Bogle’s philosophy of investing in passively-managed funds that outperform most actively-managed funds.
Vanguard has over 400 funds to choose from, but I’ve pared those down to seven of the most popular funds in a variety of market sectors to help you build a diverse, low-cost portfolio.
For investors who want to own the market
Vanguard Total Stock Market ETF (VTI)
- Expense ratio: 0.03%
- 10-year return: 11.34% APY
- Dividend yield: 1.68%
- Fund total assets: $1.1 trillion
Why I chose it
Quite possibly the most popular ETF in the world, the Vanguard Total Stock Market ETF (VTI) holds nearly all of the publicly-traded companies in the United States, about 4,000 companies. This fund is market cap-weighted, meaning the largest holdings represent U.S. companies with the largest capitalization, with businesses like Apple, Microsoft, and Amazon making up the top holdings.
The fund aims to track the CRSP US Total Market Index, which is representative of the U.S. stock market. As a cap-weighted fund, over 80% of the holdings are considered “large cap” funds, but it still holds thousands of small- and mid-cap stocks as well. The price is attractive too. With an expense ratio of just 0.03%, you will be hard-pressed to find a less expensive fund.
Vanguard S&P 500 ETF (VOO)
- Expense ratio: 0.03%
- 10-year return: 11.68% APY
- Dividend yield: 1.76%
- Fund total assets: $686.2 billion
Why I chose it
Tracking the famous S&P 500 index, the Vanguard S&P 500 ETF (VOO) holds the top 500 companies in the United States. Long viewed as the benchmark for how U.S. stocks are performing, this S&P 500 fund is a market cap-weighted fund that only holds large-cap stocks, like Facebook, Tesla, and Google.
This ETF shares a similar composition to VTI, but with more allocation toward large-cap funds, and no small-cap holdings. In fact, over 20% of its holdings are in the top 5 companies, which are all tech stocks. It has performed very well over the past 10 years, with an average 11.68% annual return. VOO also has an impossibly-low fee expense ratio of 0.03%, letting you actually keep your annual returns, instead of paying a fund manager.
For investors that want to invest internationally
Vanguard Total International Stock ETF (VXUS)
- Expense ratio: 0.07%
- 10-year return: 3.34% APY
- Dividend yield: 4.18%
- Fund total assets: $308.5 billion
Why I chose it
If you’re looking for international stock exposure, Vanguard offers the Total International Stock ETF (VXUS), which holds a wide array of international stocks from various markets. This fund looks to track the FTSE Global All Cap ex US Index, which includes nearly 8,000 international stocks (ex-U.S.), giving investors exposure to top companies like Nestle, Taiwan Semiconductor Manufacturing Co, Samsung, and Toyota.
The fund includes a mix of developed and emerging international stocks, giving broad diversity outside of the United States. And, like all Vanguard funds, it comes with rock-bottom fees, with an expense ratio of only 0.07%. Plus, the dividend yield is over 4% APY, which is on the higher-end of index funds. If you are looking to broaden your investments beyond the U.S., this fund is one of the top international picks available.
For investors who want passive income
Vanguard Total Bond Market ETF (BND)
- Expense ratio: 0.03%
- 10-year return: 0.83% APY
- Dividend yield: 4.40%
- Fund total assets: $271.1 billion
Why I chose it
While bonds haven’t been performing so hot as of late, they are still a great long-term hold for investors who want a ballast against the volatility of stocks, as well as regular income from monthly dividends. The Vanguard Total Bond Market ETF (BND) holds over 10,000 investment-grade bonds — including government, corporate, and securitized bonds — with an average maturity of 8.9 years.
BND pays out monthly dividends, and the rate is (thanks to rising rates) now over 4%. As usual, the expense ratio is a microscopic 0.03%, making it one of the cheapest bond funds on the market. Ideal for long-term holders and those looking to diversify out of equities, BND is a great all-in-one U.S. bond fund for conservative investors.
Vanguard High Dividend Yield ETF (VYM)
- Expense ratio: 0.06%
- 10-year return: 9.92% APY
- Dividend yield: 3.31%
- Fund total assets: $53.6 billion
Why I chose it
If you are a fan of passive income, the Vanguard High Dividend Yield ETF (VYM) may be a good option. With a mix of well-known dividend-paying stocks, such as Johnson & Johnson, Procter & Gamble, and Home Depot, value investors can enjoy solid quarterly dividends from blue-chip companies, while spreading the risk among 400 top-notch businesses.
While the dividend isn’t as high as some other high-yield dividend ETFs (just over 3% APY), the underlying stocks are solid businesses with long track records. And the 0.06% expense ratio makes it one of the cheapest dividend-focused ETFs on the market. If you are a value investor looking for stable companies that pay out higher-than-average dividends, then VYM may be a good option.
For investors who want exposure to real estate
Vanguard Real Estate ETF (VNQ)
- Expense ratio: 0.12%
- 10-year return: 6.24% APY
- Dividend yield: 3.65%
- Fund total assets: $61.9 billion
Why I chose it
Love real estate, but hate the idea of being a landlord? The Vanguard Real Estate ETF (VNQ) gives you broad exposure to the U.S. real estate market without the need to unclog a toilet at 3 a.m. This fund invests in REITs, as well as companies that invest in office buildings, hotels, and other real property. VNQ holds around 160 stocks in the fund, with a focus on commercial real estate, but there is a 15% allocation to residential real estate REITs.
The expense ratio is a bit higher than other Vanguard funds at 0.12%, and there is a high turnover of stocks within the fund, which may cause some taxable events. But it does offer decent quarterly dividends at around 3.65%, which includes dividends, capital gains, and return of capital. If you are looking to diversify into real estate without needing a huge down payment and paying for maintenance, VNQ is a good choice.
Read more: How to invest in real estate
For investors who want to make an impact
Vanguard ESG U.S. Stock ETF (ESGV)
- Expense ratio: 0.09%
- 3-year return: 7.93% APY
- Dividend yield: 1.44%
- Fund total assets: $5.3 billion
Why I chose it
Investing in ESG-minded practices can help grow businesses that operate with the environment and its workers in mind. The Vanguard ESG U.S. Stock ETF (ESGV) aims to track the FTSE US All Cap Choice Index, and is invested in over 1,400 U.S.-based companies that aim to make an impact socially, environmentally, and with how the business is structured.
In Vanguard’s own words, this excludes companies that “do not meet certain labor, human rights, environmental, and anti-corruption standards as defined by the UN Global Compact Principles.” With a low expense ratio (0.09%) and broad diversification across 11 different market sectors, this fund is a great way to make an impact with your investment dollars, while bringing in a solid return. The fund has only been around for four years, so the track record isn’t quite there yet, but the 3-year returns of nearly 8% are on par with the stock market average.
How I chose these funds
Vanguard offers a wide range of funds with low fees that give you exposure to almost any market sector imaginable. Here are the criteria I used when narrowing the many strong Vanguard funds down to just seven:
- Under 0.15% expense ratio
- At least $1 billion in total assets
- At least a 3-year track record
- At least 100+ underlying stocks held
- Passively managed
I chose funds in differing market sectors, including U.S. stocks, international stocks, bonds, real estate, and dividend-paying U.S. stocks. This hopefully gives you a peek into Vanguard’s most popular funds in a variety of markets, helping you find one that aligns with your investing style.
Overall, Vanguard offers some of the best low-cost funds on the market, and these seven represent the best of the best.
How to buy Vanguard funds
Buying Vanguard funds is relatively straightforward. Here’s how to set up a Vanguard account and purchase these funds for your investment portfolio:
- Sign up for an account at Vanguard.com.
- Provide personal details (such as name, address, Social Security Number, etc.).
- Select an account type (individual brokerage, IRA, etc.).
- Connect your bank account to transfer funds to Vanguard.
- Select a fund (or funds) to invest in.
- Finalize your order.
Vanguard also offers advisory services to help you build an investment portfolio, with Vanguard Personal Advisor Services® for investors who want access to a human advisor, and the Vanguard Digital Advisor® for investors who prefer a robo-advisor to automate their investment strategy. Both services help you choose Vanguard ETFs to build a portfolio based on your risk tolerance and investment goals.
It’s important to note that Vanguard does not offer fractional shares of these ETFs, meaning you need to purchase them only in whole shares at the current market price. While there are Admiral Shares™ of each ETF available, those index funds require a $3,000 minimum investment.
Summary
Vanguard continues to be the go-to for index fund investors who want to build a broadly-diversified portfolio with a few quality funds. Vanguard is known for its total stock market and total bond market funds, but it offers a wide variety of funds in many different market sectors, including real estate, ESG companies, and even high-dividend stocks.
When investing for retirement or other financial goals, it’s important to understand your risk tolerance, investment timeline, and amount you can invest. And working with a licensed financial professional is always a good idea if you are new to investing and looking for some guidance. While Vanguard funds are great, knowing your investment strategy before choosing a fund will help you be a more successful investor.