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7 Best Vanguard Funds for Retirement

Rebecca Lake

A mix of choices for investors.

Vanguard is practically synonymous with low-cost index investing. Its wide variety of mutual funds, target-date funds and exchange-traded funds, paired with some of the lowest expense ratios among any online brokerage, have helped make Vanguard a household investing name. "Vanguard provides an array of low-cost and well-managed funds for retirement investors," says Jay Abolofia, a financial advisor and the founder of Lyon Financial Planning. "Other discount brokers like Fidelity also offer competitive funds, but they often do not have the same track record that their Vanguard equivalents have." With so many options, choosing the best Vanguard funds for retirement may seem like a daunting task. ETFs are often a better solution for investors because of their cost- and tax-efficient nature. The good news with Vanguard is that investors can choose from a mix of mutual funds, ETFs and index funds to create a well-rounded retirement strategy. Consider these seven options.

Vanguard Total World Stock Index Fund (ticker: VTWAX)

VTWAX is one of the best Vanguard funds for retirement investors who want stock exposure, beyond domestic equities. Abolofia says this fund could work well as part of a two-fund index strategy, with one fund representing stocks and the other representing bonds. "For the stock portion, the goal is to buy the global market at the lowest cost," he says. The Vanguard Total World Stock Index Fund provides low-cost exposure to global stock markets on a market capitalization basis. The fund offers an expense ratio of 0.10%, making it one of the best Vanguard index funds for cost. Top 10 holdings include Apple (AAPL) and Microsoft Corp. (MSFT), along with Amazon.com (AMZN) and Facebook (FB).

Vanguard Total Stock Market Index Fund (VTSMX)

VTSMX is one of the best Vanguard index funds to consider for gaining exposure to the U.S. stock market in its entirety. "This is a very broad index fund, meant to track the performance of domestic stocks of all sizes," says Robert Johnson, a professor of finance at the Heider College of Business. Top 10 holdings include Microsoft, Apple and Amazon, but the fund also includes mid-cap and small-cap stocks. Johnson points out two of the fund's best features: a 0.14% expense ratio and a low investment turnover ratio of 3%. With a minimum investment of $3,000, it offers a low barrier to entry for retirement investors.

Vanguard Target Retirement 2040 Fund (VFORX)

Target-date funds take the guesswork out of asset allocation. "They're basically the 'set it and forget it' method of investing," says Andy Panko, the owner of Tenon Financial. These funds rebalance automatically over time as the investor's target retirement date approaches. The Vanguard Target Retirement 2040 Fund could be a good choice for the midlife investor who wants a simplified approach to portfolio management. "Currently, VFORX invests approximately 85% in stock and the remainder in bonds," Panko says. Top holdings include VTSMX, the Vanguard Total International Stock Index Fund (VGTSX) and the Vanguard Total Bond Market II Index Fund (VTBIX). With a net expense ratio of 0.14%, investors are hard-pressed to find a more affordable target date retirement fund.

Vanguard Balanced Index Fund (VBIAX)

As investors get closer to retirement, it's natural to lean toward a more conservative asset allocation. With VBIAX, investors get a 60-40 split between stocks and bonds. A full balance index strategy, such as the one offered by the Vanguard Balanced Index Fund, allows for a fully diversified portfolio in a one-stop-shop, says Christopher Caruso, a private wealth advisor at Glovista Investments. As an index fund, it's unique in that it tracks two underlying benchmarks: the CRSP US Total Market Index and the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. This fund offers passive investing at a low expense ratio of 0.07%. Caruso says retirement investors seeking a similar approach with active management may also consider the Vanguard Wellesley Income Fund Admiral Shares (VWIAX), one of Vanguard's oldest funds dating back to the 1970s.

Vanguard LifeStrategy Income Fund (VASIX)

Vanguard's LifeStrategy funds can offer global diversification across stock and bond markets, making them a standout option for retirement investors, says Patrick Whalen, a certified financial planner at Whalen Financial Planning. LifeStrategy funds invest in Vanguard index funds and VASIX is designed for investors whose top priority is current income. This type of fund may be better suited to an investor who is in retirement or within the five-year window leading up to retirement, as it's the most conservative of the LifeStrategy offerings. An investor who has a longer horizon may consider the LifeStrategy Growth Fund (VASGX) instead, which is 80% stocks and 20% bonds. All of Vanguard's LifeStrategy funds are low cost, with a net expense ratio of 0.11%.

Vanguard U.S. Multifactor ETF (VFMF)

Retirement investors who are interested in the best Vanguard ETFs may look to VFMF. Neel says this fund has a compelling number of bullish versus bearish stocks and because it appears to use an equal weighting methodology, investors may benefit if the market moves away from the biggest stocks. The Vanguard U.S. Multifactor ETF has an eclectic mix of holdings such as Target (TGT), Procter & Gamble Co. (PG) and Intel Corp. (INTC), making it a widely diversified fund choice. That unique blend of holdings and the fact that it uses a factor-based approach could make VFMF attractive for retirement investors seeking equity exposure, Neel says. Like other best Vanguard funds for retirement, it has a low expense ratio of 0.18%.

Vanguard Real Estate Index Fund (VGSLX)

VGSLX may be one of the best Vanguard index funds for including a stock or bond alternative in a retirement portfolio. This fund has two goals: income and long-term capital appreciation. Those goals are achieved by tracking the MSCI US Investable Market Real Estate 25/50 Index, which is a benchmark index for publicly traded real estate investment trusts. Year to date, VGSLX has delivered a 28.94% return. REITs invest in real estate properties and pay out dividends to investors. REITs are required to distribute 90% of their income as a dividend and assuming steady growth, they could provide consistent income for retirement. The Vanguard Real Estate Index Fund can be an easy entry into real estate investing for retirement, without the headaches of property ownership.

Check out our best Vanguard funds for retirement.

-- Vanguard Total World Stock Index Fund (VTWAX)

-- Vanguard Total Stock Market Index Fund (VTSMX)

-- Vanguard Target Retirement 2040 Fund (VFORX)

-- Vanguard Balanced Index Fund (VBIAX)

-- Vanguard LifeStrategy Income Fund (VASIX)

-- Vanguard U.S. Multifactor ETF (VFMF)

-- Vanguard Real Estate Index Fund (VGSLX)

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