Vanguard Value Index Portfolio: What's Inside?

Vanguard is the largest issuer of mutual funds in the world and the third-largest issuer of exchange-traded funds (ETFs). Vanguard's index funds use a passively managed index-sampling strategy to track a benchmark index. The Vanguard Value Index Fund focuses on large-cap stocks that produce value instead of growth. Vanguard classifies this fund as a moderate to aggressive fund. The fund has a potential for high reward but comes with high risk. As of October 2022, the Vanguard Value Index Fund Admiral Shares Fund had more than $143 billion in assets and is considered one of the market's largest and most successful value funds.

Large-cap stocks

The Vanguard Value Index Fund focuses on large-cap stocks that produce value instead of growth. The fund is closed to new investors, but the Admiral shares version can be purchased for a minimum of $3,000. The stocks in the fund are in the top 70% of all domestic stocks based on market capitalization. Vanguard classifies this fund as a moderate to aggressive fund.

The Vanguard Value Index Fund Admiral Shares (VVIAX) fund, considered a core holding, employs a long-term buy-and-hold approach, investing in stocks that make up the CRSP US Large-Cap Value Index. As of October 2022, the fund was invested in 344 stocks that the fund managers considered to be undervalued and out of favour with investors. The fund targets several sectors, including financial, healthcare, consumer staples, and industrials, with United Health Group, Exxon Mobil Corps, Johnson & Johnson, and Berkshire Hathaway Inc. among its top holdings.

The Vanguard Large Cap Index Fund seeks to track the performance of the CRSP US Large Cap Index, which measures the investment return of large-capitalization stocks. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

Financial, healthcare, consumer staples, and industrial sectors

Financial Sector

The Vanguard Value Index Fund offers exposure to large-cap stocks that produce value instead of growth. This fund is well-diversified and has a low turnover of stocks. The stocks in this fund are in the top 70% of all domestic stocks based on market capitalization. As of November 27, 2023, the fund had assets totaling almost $139.39 billion invested in 344 different holdings. The fund has returned 8.91% over the past decade.

Healthcare Sector

The Vanguard Health Care Index Fund ETF (VHT) employs an indexing investment approach. It is designed to track the performance of the MSCI US IMI/Health Care 25/50, an index made up of stocks of large, mid-size, and small US companies within the healthcare sector. The fund attempts to replicate the target index by investing all or substantially all of its assets in the stocks that make up the index. The top 10 holdings of VHT include well-known healthcare companies such as Eli Lilly and Company, UnitedHealth Group, and Johnson & Johnson.

Consumer Staples Sector

The Vanguard Consumer Staples Index Fund ETF (VDC) provides exposure to the consumer staples sector. This sector includes companies that provide essential products and services that consumers regularly purchase, such as food, beverages, household goods, and personal care items.

Industrial Sector

The Vanguard Industrials Index Fund ETF (VIS) offers investment in the industrial sector. This sector includes companies that provide a range of products and services related to construction, engineering, manufacturing, and transportation.

An investment in the Vanguard Value Index Fund can provide exposure to a well-diversified portfolio of large-cap value stocks, while the Vanguard Health Care Index Fund ETF offers a focused investment in the healthcare sector. The Vanguard Consumer Staples Index Fund ETF and the Vanguard Industrials Index Fund ETF provide additional diversification and exposure to specific sectors.

Low turnover of stocks

The Vanguard Value Index Fund Admiral Shares (VVIAX) is one of the market's largest and most successful value funds. It is considered a core holding, employing a long-term buy-and-hold approach. As of October 2022, the fund is invested in 344 stocks that the fund managers consider undervalued and out of favour with investors. The fund has a low turnover, which helps to keep its expense ratio of 0.05% among the lowest in its category.

The Vanguard Value Index Fund has a low turnover of stocks, which means that the fund does not frequently buy and sell stocks. This is in contrast to actively managed funds, which have higher trading costs due to greater turnover in fund holdings. The low turnover of the Vanguard Value Index Fund helps to keep costs low and reduces taxable capital gains distributions, which can reduce an investor's tax bill.

The fund's low turnover is made possible by its passive investment strategy, which seeks to replicate the performance of a benchmark index rather than beat it. In this case, the fund invests in stocks that make up the CRSP US Large-Cap Value Index. This index is made up of large-cap stocks that produce value instead of growth. These value stocks tend to grow at a slower rate and may produce income for investors.

The low turnover of the Vanguard Value Index Fund is also due to its long-term buy-and-hold approach. The fund managers are willing to give underperforming companies time to turn things around, rather than frequently buying and selling stocks. This strategy can pay off for patient investors, as evidenced by the fund's historical returns.

Overall, the low turnover of stocks in the Vanguard Value Index Fund is a result of its passive investment strategy and long-term buy-and-hold approach. This helps to keep costs low and reduces taxable capital gains distributions, making it an attractive option for investors seeking a well-diversified portfolio with moderate to aggressive returns.

Moderate to aggressive fund

Vanguard's Moderate to Aggressive fund is a great choice for investors seeking a balanced approach to investing. This type of fund offers a mix of stocks and bonds, providing both growth potential and a degree of stability. While it is important to note that the specific allocation can vary, a moderate to aggressive fund typically allocates 50% to 70% of its portfolio to stocks, with the remaining 30% to 50% invested in bonds. This allocation strikes a balance between capturing upside potential in the stock market while also providing the stability and income typically associated with bond investments.

One example of a moderate to aggressive fund offered by Vanguard is the Vanguard Wellington Fund (VWELX). This fund has a long history, having been founded in 1929, and it is considered a "balanced" fund. It allocates about two-thirds of its portfolio to publicly traded stocks and the remaining one-third to fixed-income markets, such as investment-grade corporate bonds. The stock portion includes large corporations like Microsoft and Apple, while the bond holdings include agency mortgage bonds and investment-grade corporates from major financial institutions. With an expense ratio of 0.26%, it offers a blend of growth and income for investors.

Another option within the moderate to aggressive space is the Vanguard LifeStrategy Moderate Growth Fund. This fund invests in other Vanguard Mutual Funds according to a fixed formula, allocating approximately 60% of its assets to common stocks and 40% to bonds. This allocation strikes a balance between equity exposure and fixed-income investments, providing investors with a diversified approach.

Vanguard's moderate to aggressive funds can be an attractive choice for investors who want a mix of growth and stability in their portfolios. These funds offer exposure to a wide range of stocks and bonds, providing diversification across different sectors and asset classes. By allocating a significant portion to stocks, these funds allow investors to capture the growth potential of the equity market, while the bond allocation helps to dampen volatility and provide a source of income.

It is important to remember that investing involves risk, and the performance of any investment fund is subject to market fluctuations and other factors. Investors should carefully consider their investment objectives, risk tolerance, and conduct their own research or consult a financial advisor before investing.

Low-cost index products

Vanguard is the largest mutual fund provider in the US and is known for its low-cost index products. Vanguard's average expense ratio across its index mutual funds and ETFs is 72% less than the industry average. The company is uniquely structured so that it passes on more savings to investors. As it has no outside owners, it is not distracted by their demands and can focus on lowering costs for investors.

Vanguard's low-cost approach has led to significant inflows of assets into its funds in recent years. The company offers a wide array of mutual funds and ETFs. Vanguard's first mutual fund, launched in 1976, was the First Index Investment Trust, which aimed to track the S&P 500.

Vanguard's low-cost index funds are ideal for buy-and-hold investors. The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is a good example of a low-cost, low-turnover fund. This fund passively tracks the returns of the US stock market and has an expense ratio of just 0.04%. However, it requires a minimum initial investment of $3,000.

The Vanguard 500 Index Fund Admiral Shares (VFIAX) is another low-turnover fund that tracks the S&P 500. This fund has a 0.04% expense ratio.

The Vanguard Value Index Fund Admiral Shares (VVIAX) is another low-cost fund that targets the "value" factor. This fund has delivered US large-cap value exposure with a 0.05% expense ratio and a 10.3% portfolio turnover rate.

The Vanguard Wellington Fund Investor Shares (VWELX) is not a passive, low-turnover index fund, but its track record makes it a strong contender for buy-and-hold investors. Two-thirds of this fund are allocated to large- and mid-cap stocks with high dividends and low valuations, while one-third is allocated to investment-grade corporate bonds. The fund charges a 0.26% expense ratio and pays a 2.3% 30-day SEC yield.

The Vanguard Target Retirement 2070 Fund (VSVNX) is a single-ticker portfolio solution for investors looking to retire around 2070. This target-date fund is currently 90% allocated to global stocks and 10% to global bonds. Over time, it will gradually increase its bond allocation to become more conservative.

Vanguard's low-cost index funds are a great option for investors seeking a buy-and-hold strategy. With low expense ratios and low turnover, these funds offer efficient exposure to the overall market and specific market sectors.

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