The Only 3 Vanguard Funds You Need to Build a Portfolio
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The Only 3 Vanguard Funds You Need to Build a Portfolio

Kiplinger

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How many Vanguard funds does it take to build a complete portfolio? No, this is not a lead in to a riddle or a joke, but rather the beginning of a story about the best kind of portfolio construction — simple, low cost and diversified.

In fact, the story of Vanguard itself is about the power of simplicity and frugality for the purpose of achieving market returns with very little effort.

As any proud Boglehead would boast, Jack Bogle is credited for pioneering the best kind of low-cost, diversified investment portfolios wrapped inside a wonderful package called index funds. Vanguard 500 Index Fund Investor Class (VFINX) was the first index fund offered to individual investors.

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Today, with a large selection of index funds, actively managed funds and exchange-traded funds, investors can easily find the right combination of funds to meet their investment needs. But even with dozens of top funds to choose from at Vanguard, investors can build a diversified portfolio with just a few funds.

So in that spirit, we give you the only three Vanguard funds you need to build a complete portfolio:

Prices and data are from the original InvestorPlace story published on January 30, 2017. Click on ticker-symbol links in each slide for current prices and more.

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The Only 3 Vanguard Funds You Need to Build a Portfolio | Slide 2 of 4

Vanguard Total Stock Market Index

Symbol: VTSMX

Expenses: 0.16%

Minimum initial investment: $3,000

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To begin the three-fund portfolio of Vanguard funds, you’ll need a fund that covers the U.S. stock market and the best choice to do the job is Vanguard Total Stock Market Index Fund Investor Shares.

The largest mutual fund in the world, as measured by assets under management, VTSMX also covers a large amount of ground, as measured by its portfolio of more than 3,500 stocks.

VTSMX is designed to cover the entire U.S. stock market, and to do this it passively tracks the CRSP US Total Market Index, which is a cap-weighted index of large-cap, mid-cap and small-cap stocks.

Being cap-weighted, the fund’s top holdings consist of mega-caps like Apple Inc. (AAPL), Alphabet Inc (GOOG, GOOGL) and Microsoft Corporation (MSFT).

SEE ALSO FROM KIPLINGER: 6 Vanguard Index Funds to Buy and Hold Forever

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The Only 3 Vanguard Funds You Need to Build a Portfolio | Slide 3 of 4

Vanguard Total International Stock Index

Symbol: VGTSX

Expenses: 0.19%

Minimum initial investment: $3,000

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To gain broad exposure to non-U.S. stocks, you’ll need to add Vanguard Total International Stock Index Fund Investor Shares to your portfolio.

The VGTSX portfolio offers a low cost way to capture both developed and emerging markets around the world outside of the U.S. For a rock bottom expense ratio of just 0.19%, you get exposure to more than 6,000 non-U.S. stocks. To do this, VGTSX passively tracks the FTSE Global All Cap ex US Index.

The fund consists primarily of large-cap stocks like Royal Dutch Shell plc (RDS.B, RDS.A), Nestle SA (NSRGF), and Novartis AG (NVS), but it also holds international mid- and small-cap stocks.

SEE ALSO FROM INVESTORPLACE: 3 Vanguard Funds That Are Taking on Water

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The Only 3 Vanguard Funds You Need to Build a Portfolio | Slide 4 of 4

Vanguard Total Bond Market Index

Symbol: VBMFX

Expenses: 0.16%

Minimum initial investment: $3,000

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The third and final Vanguard fund needed to complete the portfolio is Vanguard Total Bond Market Index Fund Investor Shares.

To complement the total U.S. stock market and the total non-U.S. stock market, VBMFX will hand you the entire U.S. bond market in one low-cost mutual fund.

The portfolio covers a wide swath of ground in the debt markets by allocating fund assets to about 30% corporate bonds and about 70% U.S. government bonds of short-, intermediate- and long-term maturities.

VBMFX passively tracks the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which represents more than 8,700 bonds.

With our three featured Vanguard funds — VTSMX, VGTSX and VBMFX — you’ll get the broadest low-cost coverage of stocks and bonds around the world. All that remains is allocating your own portfolio assets in a way that suits your investment objective and risk tolerance.

This article is by Kent Thune of InvestorPlace. As of this writing, he did not personally hold a position in any of the aforementioned securities, although he holds VTSMX and VBMFX in some client accounts. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.

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