Vanguard Funds: Where To Invest Your Windfall

Vanguard funds are a popular investment choice due to their low costs and high quality. Vanguard's mutual funds are a collection of investors' money that fund managers use to invest in stocks, bonds, and other securities. Vanguard offers a wide range of funds, including index funds and actively managed funds, providing investors with various options to choose from based on their investment strategy, risk tolerance, and financial goals. When deciding where to invest a windfall, it is important to consider the level of risk and diversification that aligns with your financial goals and risk tolerance.

Vanguard's index funds

Vanguard is a uniquely structured company that was founded on the idea that an investment company shouldn't have any outside owners. Instead, Vanguard's funds own the company, and investors own the funds. This means that Vanguard is not distracted by the demands of private owners or other outside interests. As a result, Vanguard can pass on savings to its investors in the form of lower costs.

• Vanguard 500 Index Fund Admiral Shares (VFIAX): Also known as the Vanguard S&P 500 Index fund, this fund gives investors exposure to 500 of the largest U.S. companies, which make up 75% of the U.S. stock market's total value.
• Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX): This fund covers the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks.
• Vanguard Growth Index Fund Admiral Shares (VIGAX): This fund takes a buy-and-hold approach to stocks in large U.S. companies in sectors with higher growth potential, such as technology, consumer services, and financial services.
• Vanguard Small-Cap Index Fund Admiral Shares (VSMAX): This fund targets smaller publicly held companies for investors who want to diversify their investments away from larger public companies.
• Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX): This fund gives investors wide exposure to U.S. investment-grade bonds, investing about 30% in corporate bonds and 70% in U.S. government bonds.
• Vanguard Balanced Index Fund Admiral Shares (VBIAX): This fund mixes its investments between stocks (roughly 60%) and bonds (about 40%) to balance growth through exposure to equities with stability through fixed-income investments.
• Vanguard Total International Stock Index Fund Admiral Shares (VTIAX): This fund takes a global approach, tracking stock indexes in both developed and emerging markets.

Vanguard's actively managed funds

When considering Vanguard funds to invest a windfall in, it's important to understand the difference between index funds and actively managed funds. Index funds are designed to mirror certain market segments and keep pace with market returns. On the other hand, actively managed funds try to beat market returns by using professional money managers to hand-pick investments. Vanguard has a long history of success with actively managed funds, and they offer more than 70 U.S.-based actively managed funds spanning stock, bond, and balanced funds.

Actively managed funds can be a good option for investors who want to diversify their portfolios and are comfortable with the associated risks. Vanguard's actively managed funds have outperformed their peer-group averages over the past 10 years, with 91% of their actively managed funds performing better. This success is due in part to Vanguard's disciplined investment approach, where they pursue fund objectives without taking excessive risks. Additionally, Vanguard's size and reputation allow them to carefully select partners from across the globe and build deep relationships with their investment teams.

When choosing between index funds and actively managed funds, investors should consider their risk tolerance and investment goals. Actively managed funds offer the potential for higher returns but also come with the risk of underperformance. It's important to have realistic expectations and remember that even the best money managers can make mistakes.

• Vanguard Wellington Fund Investor Shares (VWELX): This fund has a long history, having been launched in 1929, and has delivered an annualized return of 8.3%. It allocates two-thirds of its funds to out-of-favour large- and mid-cap stocks with high dividends and low valuations, while the remaining one-third is invested in investment-grade corporate bonds. It charges a 0.26% expense ratio and pays an above-average 2.3% 30-day SEC yield.
• Vanguard Target Retirement 2070 Fund (VSVNX): This fund is suitable for investors looking to retire around 2070, as it is currently allocated 90% to global stocks and 10% to global bonds. Over time, it will gradually increase its bond allocation to become more conservative and prioritise capital preservation and income.
• Vanguard Value Index Fund Admiral Shares (VVIAX): This fund targets the "value" factor, which refers to the historical outperformance of stocks with high book-to-market ratios. It tracks 340 stocks represented by the CRSP US Large Cap Value Index and offers a low expense ratio of 0.05% and a portfolio turnover rate of 10.3%.

Vanguard's ESG funds

Vanguard is a popular choice for investors looking to buy and hold funds. The company offers a range of low-cost funds that are ideal for long-term investors.

Vanguard's ESG (Environmental, Social, and Governance) funds allow investors to put their money in funds that consider environmental, social, and governance issues. Vanguard's ESG funds either follow an exclusionary strategy, omitting companies that don't meet certain ESG criteria, or are actively managed, investing in companies with leading or improving ESG practices.

• ESGV ESG U.S. Stock ETF (Indexed, approx. 1,500 stocks)
• VFTAX FTSE Social Index Fund (Indexed, approx. 500 stocks)
• VSGX ESG International Stock ETF (Indexed, approx. 3,000-4,000 stocks)
• VCEB ESG U.S. Corporate Bond ETF (Indexed, approx. 200-300 bonds)
• VBPIX Baillie Gifford Global Positive Impact Stock Fund (Actively managed, approx. 25-50 stocks)
• VEOIX Global Environmental Opportunities Stock Fund (Actively managed, approx. 25 stocks)
• VEIGX Global ESG Select Stock Fund (Actively managed, approx. 40-50 stocks)

Vanguard's retirement funds

If you're looking to invest a windfall in Vanguard's retirement funds, there are a few options to consider. Vanguard offers a range of Target Retirement Funds with different target dates, which are designed to help you invest successfully for retirement. These funds provide a straightforward approach to managing risk while growing your retirement savings. Here are some key things to know about Vanguard's retirement funds:

• Diversification and Risk Management: Each Target Retirement Fund invests in Vanguard's broadest index funds, giving you access to thousands of U.S. and international stocks and bonds. This diversification helps to reduce risk.
• Professionally Managed Asset Mix: The fund managers gradually adjust the asset allocation, shifting from more stocks to more bonds as you get closer to retirement. This makes the fund more conservative over time.
• Automatic Rebalancing: Vanguard's funds are automatically rebalanced, freeing you from the hassle of ongoing rebalancing.
• Low Expense Ratios: The average Vanguard Target Retirement Fund expense ratio is 82% less than the industry average, which means more money stays in your account.
• Variety of Target Dates: Vanguard offers Target Retirement Funds with target dates ranging from 2020 to 2070, allowing you to choose the fund that aligns with your retirement timeline.
• Minimum Investment: The minimum investment per Target Retirement Fund is $1,000.

Here's an example of how the Target Retirement Funds are structured, based on your birth year and years to retirement:

• VSVNX Target Retirement 2070: For individuals born between 2003-2007, with about 45 years to retirement.
• VLXVX Target Retirement 2065: For individuals born between 1998-2002, with about 40 years to retirement.
• VTTSX Target Retirement 2060: For individuals born between 1993-1997, with about 35 years to retirement.
• VFFVX Target Retirement 2055: For individuals born between 1988-1992, with about 30 years to retirement.
• VFIFX Target Retirement 2050: For individuals born between 1983-1987, with about 25 years to retirement.

You can refer to Vanguard's table to find the fund that best fits your retirement timeline. Additionally, Vanguard offers other types of funds, such as the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and the Vanguard 500 Index Fund Admiral Shares (VFIAX), which are also popular choices for long-term investors.

Vanguard's brokerage account

A Vanguard Brokerage Account is a standard non-retirement investing account. It is a flexible account that can be used to save for any goal, from buying a new house or car to building an emergency fund. There is no fee or minimum investment amount to open an account, and there are no early withdrawal penalties.

A brokerage account is like a basket that holds your investments. You can hold a wide variety of investments in a brokerage account, including mutual funds, ETFs (exchange-traded funds), stocks, bonds, and more. These investments can generate returns and help you grow your savings.

There are two types of Vanguard Brokerage Accounts: individual brokerage accounts and joint brokerage accounts. An individual account has only one account owner, while a joint account has two or more account owners.

To open a Vanguard Brokerage Account, you need to select an account type based on your goals (such as retirement, general investing, or education). You can open one account at a time. Once you have opened your account, you can place trades to buy investments, including mutual funds, ETFs, stocks, and bonds.

It is important to note that brokerage accounts are not FDIC-insured. However, Vanguard accounts are protected by Securities Investor Protection Corporation (SIPC) insurance, which covers up to $500,000 in securities and up to $250,000 in cash if the firm fails.

When deciding how to invest a windfall, Vanguard suggests that you are often better off investing a lump sum compared to incrementally investing your money over time (known as dollar-cost averaging). Vanguard research found that lump-sum investing outperformed dollar-cost averaging nearly two-thirds of the time between 1976 and 2022.

• Vanguard 500 Index Fund Admiral Shares (VFIAX)
• Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
• Vanguard Growth Index Fund Admiral Shares (VIGAX)
• Vanguard Small-Cap Index Fund Admiral Shares (VSMAX)
• Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
• Vanguard Balanced Index Fund Admiral Shares (VBIAX)
• Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)

Frequently asked questions