Mutual funds are preferred by investors more than stocks because they give them the much needed diversification of investment. They also promise better returns than the stocks because there is a lesser degree of risk attached to them. The funds that are hot favorites among investors currently are the index funds. These involve low costs and provide better exposure to the investors’ money. Vanguard is the biggest name when it comes to investment management. They offer close to 50 low-cost index funds for investors to pick and choose from. With so many options available, which is the right one? Here are some of the best index funds from Vanguard in different categories.
Vanguard 500 Index Fund
This is one of the most stable funds of Vanguard and comes quite cheap. As the name indicates, the Vanguard 500 Index fund (VFINX, Financial) invests in the shares of the big companies on the S&P 500 Index. This fund gives investors exposure to most of the big companies in the US and the performance of this fund is directly proportional to the S&P500 Index. This fund has been in operation for more than 40 years now. If one has to point out anything negative about this fund, it could be the fact that this fund invests only in large companies and not the small ones. In the other active funds, investors need to spend close to $10 per year for an investment worth of $1000; however the Vanguard 500 Index Fund has a very low expense ratio which requires investors to spend a paltry $0.17 per year for an investment worth of $1000.
Vanguard Total Stock Market Index Fund
The Vanguard Total Stock Market Index Fund (VTSMX, Financial) was initiated to offset the backdrop of the Vanguard 500 Index Fund. The latter invested only in huge domestic companies, whereas the former invested in small and medium-sized domestic companies as well. The expense ratio for this fund is similar to the one mentioned above. This fund has witnessed reasonable growth in the last decade and its value is up by 8% now. Exposure to the small and medium sized companies help investors to scatter their investments in a wide range of sectors, thereby spreading the probability of risk as much as they can.
Vanguard Total International Stock
If you, as an investor, are looking for some international exposure for your investment and want to invest in some of the best international stocks, Vanguard Total International Stock (VGTSX, Financial) is the right choice for you. This fund will invest your money in companies that are located in developed and developing countries. The performance of this fund is not quite good currently because the US dollar has been strengthening day by day, putting currencies of other countries in the backseat. Nevertheless, this fund has many takers as investors get exposure to some of the best and growing companies of the world. The expense ratio of this fund is just 0.22%, meaning, investors need to spend $0.22 per year for investing $1000 in this fund. This rate is quite low when compared to international funds of other companies.
Vanguard Total Bond Market Index Fund
If you don’t want to invest in stocks, you can opt for the Total Bond Market Index Fund from Vanguard (VBMFX, Financial). This fund invests in all types of bonds (treasury, corporate, mortgage and foreign). Investors need to spend only $0.2 per year for investments worth $1000, making it quite affordable and attractive. In this fund, you cannot expect high yields because of varying interest rates of bonds.
Vanguard REIT Index Fund
Real estate is one of those sectors where you can expect high rates of returns on your investment, provided market conditions are favourable. If real estate is your cup of tea, you can choose Vanguard REIT Index Fund (VGSIX, Financial), which focuses only on the real estate sector. This fund invests in all kinds of residential and corporate buildings. The expense ratio for this fund is as low as 0.24%. This is quite a steal when compared to the 8.5% of returns that this fund has been giving per year, ever since 2004.
Conclusion
As an investor you must be clear on what you need from your investment. Once you have decided to invest in index funds, you can then check through all the famous funds in the market and choose the one that suits your budget and requirements perfectly well. The index funds mentioned above are quite cheap and highly profitable. You can be assured about the exposure of your investment in these funds as they choose the best in their respective industries.
