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Choosing investments can feel overwhelming. There are thousands of investment choices for you to evaluate and choose from, especially when trying to get the right asset allocation in place. Luckily there is an alternative to sorting through and using excessive numbers of mutual funds and exchange-traded funds (ETFs) to get the right allocations.
The Vanguard Group offers funds that allow for broad exposure by investing in just a few funds. With just three to five funds, you can achieve that goal of being diversified. Additionally, many of Vanguard’s funds are available as both mutual funds and ETFs so you can use your preferred investment tool and get the same results. Here are few of Vanguard’s funds that allow for easy allocation and diversification. (Note: All fund figures as of 11/30/2017.)
Key Takeaways
- Vanguard funds offer broad market exposure with minimal investment required. With as few as three to five funds, investors can achieve robust diversification across various asset classes, reducing the need for a complex portfolio.
- The Vanguard Total Stock Market Index Fund (VTSAX) and its ETF version (VTI) both have a low expense ratio of 0.04%, making them cost-effective options for U.S. stock exposure. Similarly, the expense ratios for international funds like VTIAX and VTABX are 0.11%, which supports cost-effective international diversification.
- Total International Stock Index Fund (VTIAX) offers global reach with more than 6,200 stocks, including emerging markets. For enhanced exposure to emerging markets, Vanguard offers the Emerging Markets Stock Index Fund (VEMAX), available as both a mutual fund and ETF with a 0.14% expense ratio.
- The Vanguard Total Bond Market Index Fund (VBTLX) provides comprehensive U.S. bond market coverage, including government and corporate bonds. Meanwhile, the Vanguard Total International Bond Index Fund (VTABX) offers a path to invest in international bonds, primarily from developed countries.
- For investors seeking specific sectors or income, Vanguard’s specialty funds like the Dividend Appreciation Index Fund (VDADX) and the Health Care Fund (VGHCX) provide targeted exposure to dividend-paying stocks and the healthcare sector, respectively.
Diversifying with U.S. Stock Funds
The Vanguard Total Stock Market Index Fund (VTSAX) mutual fund invests in the U.S. equity market with more than 3,600 stock holdings in this one fund. This allows you to invest in large-, mid- and small-capitalization stocks in one investment. Even better is that both the mutual fund and the ETF version, Vanguard Total Stock Market (VTI), have fees that are only 0.04%. Hard to beat this diversification and expense ratio.
Exploring International Stock Fund Options
The Total International Stock Index Fund (VTIAX) covers a wide range of international stocks including emerging markets and some international small caps. With more than 6,200 stocks in its portfolio, this can be your only international holding. The expense ratio for the mutual fund is just 0.11%. Again the ETF version, Vanguard Total International Stock (VXUS), has the same fees as the mutual fund so you can select the fund that works best for you. (See also: ETFs Commonly Found in Retirement Accounts.)
If you prefer to add more emerging markets exposure than the Total International Stock Index provides, you can supplement your international exposure with the Vanguard Emerging Markets Stock Index (VEMAX). With a fee of only 0.14%, you can gain exposure to more than 1,000 stocks from emerging markets such as Brazil, India, and China. Again, the ETF version, Vanguard FTSE Emerging Markets (VWO), has the same expense ratio as the mutual fund.
Achieving Balance with Bond Funds
The Vanguard Total Bond Market Index Fund (VBTLX) will give you exposure to almost every area of the U.S. bond market. This includes government bonds and corporate bonds of maturities varying from short to long term, with the average effective maturity of 8.4 years. The expense ratio is only 0.05% for both the mutual fund and the ETF, the Vanguard Total Bond Market (BND). (See also: Evaluating Bond Funds: Keeping It Simple.)
If you want to gain exposure to international bonds, then you can add the Vanguard Total International Bond Index Fund (VTABX). This fund invests in bonds outside of the U.S. and includes government and corporate. Most of this fund is invested in developed countries’ bonds. The expense ratio is 0.11% for both the mutual fund and ETF, the Vanguard Total International Bond (BNDX).
Enhancing Your Portfolio with Specialty Funds
Vanguard offers many other specialty funds that you can add to your portfolio to fit your needs and investing approach. Examples include the Vanguard Dividend Appreciation Index Fund (VDADX), for those that are wanting more dividend income; the Vanguard Health Care Fund (VGHCX), for those that want more exposure to health care companies; and the Vanguard REIT Index Fund (VGSLX) for exposure to real estate investments. (See also: Index Mutual Funds vs. Index ETFs.)
The Bottom Line for Retirement Diversification
By using broad-based, low-cost funds from a company like Vanguard, you can easily save for retirement without having to manage a large number of funds and still achieve the right asset allocation and diversification. (See also: Top 3 Vanguard Managed ETFs.)
