Vanguard Star Fund: Smart Investment Strategy Or Risky Move?

The Vanguard STAR Fund is a balanced fund that falls into Morningstar's allocation category of 50 to 70 per cent equity. As of November 2023, the fund has assets totalling $20.68 billion invested across 12 different holdings. Vanguard is known for its low-cost funds, and the STAR Fund's expense ratio is 0.32 per cent, with a minimum investment of $1,000. The fund has produced reasonably good long-term returns, outperforming the average balanced fund. However, some investors may prefer Vanguard's Target Retirement Funds, which automatically adjust asset allocation based on the investor's age and retirement timeline.

Vanguard STAR Fund's performance

The Vanguard STAR Fund has produced reasonably good long-term returns for retirement investors. Over the past 15 years, the fund has produced an average annual return of 6.3%, outperforming the average balanced fund. The fund's 15-year performance puts it among the top 17% of funds in its category, and Vanguard STAR Fund has also posted three-year and 10-year returns that put the fund in the top quarter of all similar funds.

As of November 27, 2023, the fund has assets totalling almost $20.68 billion invested in 12 different holdings. The fund falls in the 23rd percentile of its Morningstar category for the trailing 12 months, the 26th percentile for the trailing three years, the 25th percentile for the trailing five years, and the 22nd percentile for the trailing 10 years as of late March 2017. Its expense ratio is a low 0.32 percent, and the fund requires a $1,000 minimum investment.

The fund has returned 6.24 percent over the past year, 1.72 percent over the past three years, 5.80 percent over the past five years, and 6.10 percent over the past decade. The fund's risk compared with that of others in its category is considered average by Morningstar for the trailing three-, five- and 10-year periods. The level of return is deemed above average compared with that of its peers for the corresponding periods.

The fund's performance has been described as "reasonable" and "not irrelevant", and it has been said to have "done pretty well" as a balanced fund. It has also been said to have "outperformed the Vanguard Balanced Index Fund but underperformed the Vanguard Wellington Fund".

Fees and expenses

Expense Ratio

The Vanguard STAR Fund has an expense ratio of around 0.3%, which is considered low compared to other funds in its category. For context, the category average expense ratio is 0.84%. This low expense ratio is a hallmark of Vanguard funds and contributes to their reputation for being low-cost.

Minimum Investment

The Vanguard STAR Fund has a minimum investment requirement of $1,000. This is a relatively low minimum compared to some other Vanguard funds, which may require a minimum of $3,000. The low minimum investment makes the Vanguard STAR Fund more accessible to a wider range of investors.

Account Service Fees

The fund does charge account service fees for accounts with balances of less than $10,000 invested in the fund. However, investors can avoid this fee by signing up for electronic delivery of account-related materials. This provides some flexibility for investors who may have smaller amounts to invest.

Marketing Fees

The Vanguard STAR Fund does not charge any 12b-1 marketing fees. This is a positive feature, as marketing fees can increase the overall cost of investing in a fund.

Sales Load

In line with Vanguard's general approach, the Vanguard STAR Fund does not charge a sales load. This means that investors do not have to pay a commission or sales charge when buying or selling shares of the fund.

Purchase and Redemption Fees

The fund also avoids purchase fees and redemption fees. This is advantageous as it reduces the upfront cost of investing and also avoids penalties when selling shares.

Management Fees

While not explicitly stated, the Vanguard STAR Fund is likely to have management fees built into its expense ratio. The fund is actively managed, and these management fees cover the cost of the fund managers and their investment strategies.

Distribution Fees

The fund has a low distribution fee level. This suggests that there are minimal costs associated with distributing the fund's dividends or interest payments to investors.

Overall, the Vanguard STAR Fund has a relatively low fee structure, particularly when compared to other funds in its category. The low expense ratio and absence of certain fees make it a cost-effective option for investors. However, it is important to consider all aspects of the fund, including its investment strategy, performance, and risk profile, before making an investment decision.

What Vanguard STAR Fund owns

The Vanguard STAR Fund is invested in 11 other Vanguard funds to achieve its asset allocation objective. As of June 2024, the top 10 holdings of the Vanguard STAR Fund were:

• Vanguard Windsor II Inv
• Vanguard US Growth Investor
• Vanguard Short-Term Investment-Grade Inv
• Vanguard Long-Term Investment-Grade Inv
• Vanguard International Growth Inv
• Vanguard International Value Inv
• Vanguard Windsor Investor Shares
• Vanguard PRIMECAP Inv
• Vanguard Explorer Inv
• Vanguard Market Liquidity Fund

Who manages Vanguard STAR Fund

The Vanguard STAR Fund is managed by William Coleman and Walter Nejman, who have both been overseeing the fund since 2013. Coleman and Nejman are veteran Vanguard employees who manage several other funds for the firm.

The fund's officers and trustees also have a hand in managing the allocation of the fund. The Vanguard Equity Index Group, led by Joseph Brennan, is responsible for the equity funds that Vanguard STAR owns. Meanwhile, the company's Fixed Income Group is overseen by Chief Investment Officer Mortimer Buckley.

Is Vanguard STAR Fund a smart buy right now?

The Vanguard STAR Fund is a balanced fund between stocks and fixed income, with a current allocation of around 60% stocks, 25% bonds, and 10-15% cash. It falls into Morningstar's allocation of 50 to 70 per cent equity, with a low expense ratio of 0.31% to 0.34%.

The fund has produced reasonably good long-term returns, outperforming the average balanced fund over the past 15 years with an average annual return of 6.3%. It has also posted strong three- and 10-year returns, placing it in the top quarter of similar funds. The fund's officers and trustees manage the allocation, with oversight from two managers, William Coleman and Walter Nejman, who have been with the fund since 2013.

The Vanguard STAR Fund has benefited from the strong performance in the bond market recently, but this could be a double-edged sword. If interest rates rise, then bonds will fall in value, and the added income might not be enough to offset capital losses. The fund also has a set allocation that may not always be appropriate for investors, particularly those who are younger or in retirement and looking for more aggressive or conservative investments, respectively.

Given the potential for a reversal in the bond market, the Vanguard STAR Fund may not be the best choice for investors right now. However, as part of a broader retirement portfolio, it can play a useful role in providing the balanced exposure that many investors want and need.

Frequently asked questions