|Expense Ratio (net)||0.05%|
|Category||Intermediate Core Bond|
|Last Cap Gain||0.00|
|Morningstar Risk Rating||Above Average|
|Beta (3Y Monthly)||1.02|
|5y Average Return||N/A|
|Average for Category||N/A|
|Inception Date||Nov 12, 2001|
Stock investors love the Fed's apparent willingness to cut short-term interest rates. The yield on five-year certificates of deposit dropped to 1.39% as of June 21, says Greg McBride, chief financial analyst at Bankrate.com. Banks are pre-emptively cutting CD yields to protect themselves in case the Fed moves rates lower, McBride says.
Too many people who inherit a lump sum of cash or some real estate end up in poor financial shape after just two years. Here's how to not blow an inheritance.
As Christine Benz notes, investors could also reasonably match their time horizons for each part of a bond portfolio to the appropriate bond type . One common rule of thumb for gauging a bond fund's interest-rate sensitivity is that for every 1-percentage-point increase in Treasury yields, an investor could expect to lose an amount of their investment equal to the fund's duration. Thus, to estimate how much an investor could lose during a 12-month period if Treasury yields increased by 1 percentage point during that same 12 months, subtract a fund's SEC yield from its current duration.
Stock-market volatility is back. Investors looking for safety are turning to bond ETFs. They hope these fast-growing ETFs offer shelter if the stock market further falters or begins to decline.
If it feels like diversifying beyond a simple moderate portfolio that owns one U.S. stock index fund and one U.S. bond index fund has been a fool's errand over the past decade, there's good reason for that. Vanguard Balanced Index VBIAX had its best decade of risk-adjusted returns since it launched in 1992, and it invests in just two broad U.S. index funds. To be fair, seven of the 153 funds in the allocation--50% to 70% equity Morningstar Category had as good or slightly better risk-adjusted returns over the decade, so there was some room for improvement, but it has still been a fantastic time for simplicity.
In a previously unpublished article, the father of indexing makes the case for a low-cost, broadly diversified portfolio of just two index funds. Adjust the risk level for your age, and let capitalism do its thing.
Mutual funds aren’t the only way to take advantage of the firm’s ultra-low fees. Vanguard sells dozens of ETFs that are clones of its index funds.
Now that the Federal Reserve is moderating its monetary policy, and the yield curve has turned negative for the first time since 2007, the best bond funds to buy are also beginning to shift.As recently as the third quarter of 2018, it appeared as if the Fed would hike interest rates two or three times in 2019. By the beginning of 2019, the Fed's tone and outlook began to signal that one or two interest rate bumps during the year were the best bet. As of a few days ago, the Fed indicated it may not raise rates at all in 2019 but may possibly hike rates just once in 2020.What this means for bonds is that yields will moderate along with the Fed's policy. Moderating yields will in turn provide support, or even a lift, to bond prices. Translation: Now may be a good time to increase your exposure to bond funds.InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 7 Reasons to Buy Housing Stocks in 2019 With that backdrop in mind, here are the best bond funds to buy for a shifting interest rate environment: Best Bond Funds to Buy: iShares Core U.S. Aggregate Bond (AGG)Expenses: 0.05%, or $5 for every $10,000 investedSmart investors know, especially after the past year, that the interest rate environment is difficult to predict. This uncertainty makes a broadly diversified bond fund like iShares Core U.S. Aggregate Bond (NYSEARCA:AGG) a wise choice.AGG tracks the Bloomberg Barclays U.S. Aggregate Bond index, which covers the entire U.S. bond market of more than 7,000 bonds. Although the portfolio has a broad range of maturities and credit quality, the average weighted maturity is just under eight years and the average ratings are investment grade.This means that investors can reap the benefits of reduced market risk through diversification but also the potential price gains coming for a moderating rate environment. Vanguard Intermediate-Term Corporate Bond (VCIT)Source: Shutterstock Expenses: 0.07%As bonds come back into favor, corporate bonds typically outperform Treasury bonds and municipal bonds. This makes Vanguard Intermediate-Term Corporate Bond (NYSE:VCIT) a smart choice now.Treasury bonds and municipal bonds typically have lower yields than corporate bonds. They also generally have lower annualized returns, especially when investing for longer than one year. * 7 Marijuana Stocks to Play the CBD Trend Unless you are investing in a taxable brokerage account and need tax-free income, a low-cost corporate bond fund like VCIT is a great fund to hold now and in the long run. SPDR Nuveen Barclays Municipal Bond Index (TFI)Expenses: 0.23%Investors needing tax-free income at the Federal level should consider a low-cost, diversified bond fund like SPDR Nuveen Barclays Municipal Bond Index (NYSE:TFI).If you want to increase your exposure to bond funds to take advantage of moderating or falling interest rates, you'll need to be cautious about the tax implications. If you're investing in a taxable account and your top Federal tax rate is 32% or higher, a municipal bond fund like TFI can be a smart idea.Although municipal bonds typically have lower yields than corporate bonds, the tax-equivalent yield of municipal bonds (the yield a taxable fund would need in order to equal the tax-free yield of a municipal bond fund) can make sense.The SEC yield for TFI is a solid 2.1% and the tax-equivalent yield is 3.5%. PIMCO 25+ Year Zero Coupon U.S. Treasury Index (ZROZ)Expenses: 0.15%If you're not afraid of taking extra risk, a highly interest-rate-sensitive bond fund like PIMCO 25+ Year Zero Coupon U.S. Treasury Index (NYSEARCA:ZROZ) may be your best bet for out-sized returns.When interest rates are flattening and expected to fall, the bonds and bond funds with the greatest interest rate sensitivity typically see the biggest price gains. Bonds with long maturities will see bigger price gains than those with shorter maturities. Also zero-coupon bonds have greater interest rate sensitivity because they pay the investor zero interest until maturity. * 7 Beaten-Up Stocks to Buy as They Reverse Course Enter ZROZ. This ETF holds long-term zero-coupon bonds and will likely see the biggest jumps in price, assuming the interest rates remain flat and begin to decline in 2020 (or sooner). Vanguard Total Bond Market Index Admiral Shares (VBTLX)Source: Shutterstock Expenses: 0.05% Minimum Investment: $3,000For a low-cost, diversified bond mutual fund, it's tough to beat Vanguard Total Bond Market Index Admiral Shares (MUTF:VBTLX).Vanguard recently closed most of their Investor Shares mutual funds and made their lower-cost Admiral Shares available to investors with the same $3,000 minimum initial investment. This makes many of their mutual funds as cheap as the cheapest ETFs on the market.To get broad exposure to bonds without taking on too much interest-rate risk, VBTLX is an outstanding choice. The portfolio tracks the Bloomberg Barclays U.S. Aggregate Bond index, which consists of over 7,000 bonds, providing exposure to the entire U.S. bond market. Vanguard Long-Term Bond Index (VBLTX)Source: Shutterstock Expenses: 0.15% Minimum Investment: $3,000The best low-cost long-term bond mutual fund is arguably Vanguard Long-Term Bond Index (MUTF:VBLTX).As the Fed puts a hold on rate hikes, and the potential increases for rate cuts, long-term bond funds like VBLTX can be a smart move. This is because long-term bonds tend to have greater price increases than short- and intermediate-term bonds as interest rates begin to fall. * 10 Stocks on the Rise Heading Into the Second Quarter VBLTX tracks the Bloomberg Barclays U.S. Long Government/Credit Float Adjusted Index, which consists of more than 2,000 U.S. long-term bonds. In addition to potential for greater gain potential, the 3.8% trailing-12-month yield may be attractive to investors looking for income. Loomis Sayles Bond Retail (LSBRX)Source: Shutterstock Expenses: 0.91%If you're looking for a well-managed go-anywhere bond fund to compliment your core bond funds, Loomis Sayles Bond Retail (MUTF:LSBRX) can be a fine choice.The bond market is arguably more complex and more difficult to forecast than the stock market. This makes a solid case for investing in either a passively managed index fund or an actively managed fund with an outstanding manager at the helm. Some investors may choose to have the best of both and use a total market index fund for a core holding and a fund like LSBRX as a compliment.Diversification is especially important in uncertain interest rate environments, as is the case in 2019.LSBRX is managed by Dan Fuss, who has been at the helm of the fund for nearly 30 years and has been managing fixed income portfolios for over 50 years. The LSBRX portfolio consists of a wide range of maturities and credit quality. About two-thirds of the bonds are U.S. and the other one-third is non-U.S. bonds.As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he held AGG and VBTLX in some client accounts. Under no circumstances does this information represent a recommendation to buy or sell securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Tech Stocks With Key Products That Face an Uncertain Future * 7 SaaS Stocks to Buy for Long-Term Gains * 5 Semiconductor Stocks That Are Scorching Hot Buys Compare Brokers The post The 7 Best Bond Funds to Buy for a Shift in Interest Rates appeared first on InvestorPlace.
This article was originally published in the February 2019 issue of Morningstar FundInvestor. Twice a year, Morningstar's manager research analysts publish Morningstar Prospects, a list of up-and-coming or under-the-radar investment strategies that are not currently covered by the research group but might be in the future. Prospects sometimes drop from the list if there are negative fundamental changes, such as investment team turnover or a material change to the investment process, or if investor interest isn't strong enough to maintain coverage.
The key reason is to limit your oversight responsibilities to help you focus on the parts of your investment program that can really move the needle--namely, your savings rate and your asset allocation. Alternatively, you could employ simple index funds or exchange-traded funds as building blocks, as in the portfolios below. In contrast with an all-in-one fund strategy, employing multiple funds allows you to exert some control over your asset allocation, customizing your portfolio's risk level to suit your situation.
[Editor's note: This story was previously published in October 2018. It has since been updated and republished. Symbols of most of the Vanguard mutual funds were updated from the original column to reflect Vanguard's change to the Admiral series of mutual funds which have lower fees. ]Vanguard index funds have long been at the forefront of passive investing and are favorites among the buy-and-hold community for building long-term portfolios.In terms of assets, two of Vanguard's funds, Vanguard Total Stock Market Index (MUTF:VTSMX) and Vanguard Total Bond Market Index (MUTF:VBTLX), are respectively among the largest stock funds and bond funds in the investment universe.InvestorPlace - Stock Market News, Stock Advice & Trading TipsWhen investors say they want to build a "set-it-and-forget-it" portfolio or a "lazy" portfolio, they look to Vanguard's broad selection of dirt-cheap mutual funds to do the building.There are many ways to construct a portfolio, but a timeless approach is to use a core and satellite structure, which consists of one or two core holdings that receive the highest allocations and usually three to five satellite holdings that receive smaller allocations. * 7 Healthy Dividend Stocks to Buy for Extra Stability With that backdrop in mind, here are seven Vanguard index funds to build a complete portfolio: Vanguard 500 Index (VFIAX)Expenses: 0.04% Minimum Investment: $3,000To get your portfolio started with Vanguard index funds, there's arguably no better choice than Vanguard's flagship index fund, Vanguard 500 Index (MUTF:VFIAX).Although many investors and advisors might argue that the Total Stock Market fund is a better choice for a core holding because of its broader diversity, VFIAX is a smart choice for investors building a portfolio to include several funds.Since VFIAX only includes roughly the top U.S. stocks by market cap, such as top holdings Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Amazon (NASDAQ:AMZN), investors can build around this fund with another fund that holds small- and mid-cap stocks. Vanguard Extended Market Index (VEXAX)Expenses: 0.08% Minimum Investment: $3,000A perfect compliment to VFIAX is Vanguard Extended Market Index (MUTF:VEXAX), which will complete your exposure to the U.S. stock market.VEXAX tracks the S&P Completion Index, which includes small- and mid-cap U.S. stocks. Together with Vanguard's S&P 500 Index fund, an investor will capture the entire U.S. stock market. Since VEXAX provides more exposure to small- and mid-cap stocks than a total stock fund would provide, it introduces a combination of higher potential long-term returns and greater diversity to a portfolio. * 7 Healthy Dividend Stocks to Buy for Extra Stability Top holdings for VEXAX include Tesla (NASDAQ:TSLA), ServiceNow (NYSE:NOW), and Worldpay (NYSE:WP). Vanguard Total Bond Market Index (VBTLX)Expenses: 0.05% Minimum Investment: $3,000Arguably the best mutual fund to buy for a fixed-income core holding, Vanguard Total Bond Market Index (MUTF:VBTLX) is an outstanding way to get cheap exposure to the entire U.S. bond market.VBTLX tracks the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which includes over 8,500 U.S. bonds across the spectrum of short-, intermediate-, and long-term in duration, and multiple categories of bonds, including corporate, municipal and U.S. Treasury issues.With such broad exposure to the bond market, combined with the low expenses of just 0.05%, it's no wonder that VBTLX is the largest bond fund in the world, as measured by assets under management. Vanguard Total International Stock Index Fund (VTIAX)Expenses: 0.11% Minimum Investment: $3,000To cover the stock market outside of the U.S., you can get the job done with just one Vanguard index fund -- Vanguard Total International Stock Index (MUTF:VTIAX).This international stock index fund does cover the full range of market capitalization; however, it is cap-weighted, which means the top holdings are large-cap stocks, such as Royal Dutch Shell (NYSE:RDS.A), Nestle (OTCMKTS:NSRGY) and Tencent Holdings (OTCMKTS:TCEHY). Vanguard FTSE Social Index (VFTSX)Expenses: 0.18% Minimum Investment: $3,000If you're looking for alternative equity core holding or a compliment to your existing stock funds, Vanguard FTSE Social Index (MUTF:VFTSX) is a good choice, especially for the socially conscious investor.On the market since 2000, VFTSX tracks the FTSE4Good US Select Index, which includes over 400 mid- and large-cap U.S. stocks like AAPL, MSFT and AMZN. * 7 Healthy Dividend Stocks to Buy for Extra Stability Investors who may be attracted to VFTSX are those that want to buy stocks of companies that have been screened for certain social, human rights and environmental criteria. However, VFTSX can be attractive to all investors for its low expenses and long-term returns that have historically outpaced the broader stock market indices. Vanguard Real Estate Index (VGSLX)Expenses: 0.12% Minimum Investment: $3,000To add diversity to a portfolio, a quality sector fund like Vanguard Real Estate Index (MUTF:VGSLX) is a smart choice.Stocks in the real-estate sector as a whole do not have a high correlation, in terms of price movement, to the major market indices, such as the S&P 500 Index. This makes VGSLX a good satellite holding in a diversified portfolio.VGSIX tracks the MSCI US Investable Market Real Estate 25/50 Index, which includes 184 holdings, most of which are REITs like American Tower Corp (NYSE:AMT), Simon Property Group (NYSE:SPG) and Crown Castle International (NYSE:CCI).As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he held VBTLX in some client accounts. Under no circumstances does this information represent a recommendation to buy or sell securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Smart Money Stocks to Buy Now * The 10 Best Cheap Stocks to Buy Right Now * 7 Restaurant Stocks to Watch in 2019 Compare Brokers The post 6 Vanguard Index Funds for a Complete Portfolio appeared first on InvestorPlace.
The investment community lost a giant Wednesday when John Bogle, the founder of Vanguard, passed away at 89. Bogle kick-started the index fund revolution, introducing the first such fund, which created an industry that now has $1.5 trillion in assets under management. "Mr. Bogle had legendary status in the American investment community, largely because of two towering achievements: He introduced the first index mutual fund for investors and, in the face of skeptics, stood behind the concept until it gained widespread acceptance; and he drove down costs across the mutual fund industry by ceaselessly campaigning in the interests of investors. Vanguard, the company he founded to embody his philosophy, is now one of the largest investment management firms in the world," according to Vanguard. Bogle, a native Pennsylvanian and Princeton alumnus, did more for everyday investors than any fund manager, investor or Wall Street maven before or after him. Whether or not index fund investors own Vanguard funds, they are benefiting from Bogle's efforts to lower costs. InvestorPlace - Stock Market News, Stock Advice & Trading Tips Known as the "Vanguard effect" in index fund circles, the firm's emphasis on keeping costs low so investors can keep more of their returns is a main reason why so many rival fund issuers offer low fees on index funds and exchange traded funds (ETFs). Today, Vanguard manages over $5 trillion in assets and the average annual fee of 0.11% on its funds is a big reason why the non-profit company is one of the world's largest asset managers. * 7 Retail Stocks to Buy for the Rise of Menswear Here are seven Vanguard index funds that Bogle himself probably would have liked. ### Vanguard 500 Index Fund -- Admiral Shares (VFIAX) Expense Ratio: 0.04% per year, or $4 on a $10,000 investment The Vanguard 500 Index Fund -- Admiral Shares (MUTF:VFIAX), an S&P 500 tracking fund, is the index fund that started it all. Today, Vanguard's S&P 500 index funds and ETFs have over $400 billion in combined assets under management, according to issuer data. To get the benefit of this index fund's low fee, investors are required to make a minimum investment of $3,000. Minimum investments are required on many Vanguard index funds, but that can be avoided by embracing the comparable ETFs, of which Vanguard has many to go along with its index funds. The Vanguard S&P 500 ETF (NYSEARCA:VOO), one of the world's largest ETFs, has no minimum investment requirement and shares that 0.04% expense ratio. VFIAX holds 509 stocks with a median market value of $99.1 billion. ### Vanguard Total Stock Market Index -- Admiral Shares (VTSAX) Expense Ratio: 0.04% While the aforementioned VFIAX started the index fund revolution, the Vanguard Total Stock Market Index - Admiral Shares (MUTF:VTSAX) is a juggernaut in its own right. With its low fee and massive roster of holdings, this index fund and its ETF equivalent are perfect ideas for novice investors. * 7 Stocks to Buy as the Dollar Weakens VTSAX's low annual fee makes it 96% cheaper than the average fees of competing strategies, a trait that likely explains the whopping $672.2 billion in assets across those index fund's various share classes. Speaking of big, VTSAX holds over 3,500 domestic stock, putting the "broad" in broad market fund. ### Vanguard Total Bond Market -- Admiral Shares (VBTLX) Expense Ratio: 0.05% Index funds helped democratize fixed-income investing and the Vanguard Total Bond Market -- Admiral Shares (MUTF:VBTLX) is one of the leaders of that charge. Thanks to index funds and passive ETFs, investors can access broad baskets of bonds at reasonable costs. VBTLX is a domestically focused fund, and its asset mix usually somewhere around 70% U.S. government debt and 30% investment-grade, domestic corporate bonds. Home to nearly 8,600 bonds, one of the largest rosters in the fixed income index fund space, VBTLX features little in the way of credit risk as essentially all of its holdings carry investment-grade ratings. This index fund's holdings have an average maturity of 8.3 years and an average duration of 5.9 years. VBTLX has a 12-month yield of 2.8%. ### Vanguard Value Index Fund -- Admiral Shares (VVIAX) Expense Ratio: 0.05% Among index funds focusing on a particular investment factor, value funds are among the most popular. The Vanguard Value Index Fund -- Admiral Shares (MUTF:VVIAX) offers cost-efficient exposure to a broad basket of U.S. large caps with the value designation. Factor funds usually carry higher fees than cap-weighted counterparts, but VVIAX is one of the cheaper value funds on the market. This index fund holds 344 stocks with a median market capitalization of $89.3 billion. Its price-to-earnings ratio of 14.3x reflects a modest discount to the S&P 500 and other broad domestic equity benchmarks. * 10 Growth Stocks With the Future Written All Over Them As is the case with many value index funds, this Vanguard fund is heavily allocated to the financial services sector. That sector accounts for 23.5% of VVIAX's weight. The healthcare and technology sectors combine for over 28% of the fund's weight. ### Vanguard Mid-Cap Index Fund -- Admiral Shares (VIMAX) Expense Ratio: 0.05% Index funds have their roots in domestic large caps, but the industry evolved to bring cost-effective exposure to smaller stocks to investors. That includes mid caps and the Vanguard Mid-Cap Index Fund -- Admiral Shares (MUTF:VIMAX), which is cheaper than 95% of competing funds, according to Vanguard data. Long-term investors should consider mid caps. "The S&P Mid-Cap Index is the winner for 25-year total return, by a mile. The mid-caps haven't taken home the prize for any of the other periods. However, they have beaten the S&P 500 for all the listed periods of 10 years or more," according to MarketWatch. VIMAX holds 366 stocks with a median market value of $12.5 billion, which is above the $10 billion mark that signals the official definition of mid-cap territory. This index fund devotes 20.5% of its weight to financial stocks while industrial and technology names combine for over 34%. ### Vanguard Short-Term Corporate Bond Index Fund -- Admiral Shares (VSCSX) Expense Ratio: 0.07% When the Federal Reserve raise interest rates, as it did four times last year, investors often move to shorter duration bonds and the related index funds. The issue with trimming interest rate risk is that investors' income streams can be hit by that move. One way of ameliorating that scenario is with short-term corporate bond index funds, such as the Vanguard Short-Term Corporate Bond Index Fund -- Admiral Shares (MUTF:VSCSX). VSCSX yields 2.7% and 90% cheaper than competing short-term corporate bonds funds. * 8 Dividend Stocks With Growth on the Horizon Credit risk is minimal with this index fund as almost 87% of VSCSX's 2,200-plus holdings are rated A or BBB. The index has an average duration of 2.7 years. ### Vanguard Total World Stock Index Fund -- Investor Shares (VTWSX) Expense Ratio: 0.19% Prior to the advent of index funds, investors looking for international equity exposure were forced to stock pick or embrace high-fee, actively managed mutual funds. Today, the universe of international equity index funds is chock full of funds appropriate for rookie and cost-conscious investors alike. The Vanguard Total World Stock Index Fund -- Investor Shares (MUTF:VTWSX) is one of the leading index funds in that group. As its name implies, VTWSX is a total market fund, meaning it offers exposure to a broad swath of regions and stocks. VTWSX, which holds over 8,100 stocks, has some emerging markets exposure to the tune of 9.9%, but the fund is dominated by developed markets. While VTWSX uses different terminology, it is essentially a global index fund, meaning its largest geographic exposure is the U.S. Japan, the U.K. and China combine for almost 17% of the fund's weight. Global and international index funds usually feature higher fees than counterparts focusing on domestic stocks, but VTWSX is still less expensive than 83% of rival funds. As of this writing, Todd Shriber did not own any of the aforementioned securities. ### More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Companies Apple Should Consider Buying * 7 Beaten-Up Housing Stocks Due for a Bounce Back * Take Buffett's Advice: 5 Vanguard Funds to Buy Compare Brokers The post The Bogle Way: 7 Index Funds for Passive Investors appeared first on InvestorPlace.
Among the questions asked of my July 4 column about Taylor Larimore's three-fund portfolio was its historic performance. How would investors have fared had they implemented that idea 20 years ago? Easy to answer, particularly with Morningstar Direct's handy-dandy hypotheticals tool.
Last week's column profiled Taylor Larimore's recommended three-fund portfolio, which consists of three Vanguard offerings: Total Stock Market Index VTSAX , Total International Stock Index VTIAX , and Total Bond Market Index VBTLX . My tax expertise starts and ends with realizing that if I own shares of Berkshire Hathaway BRK.B , I will be tax-free until I sell that position, since the company does not pay a dividend, and stocks, unlike mutual funds, are not forced to distribute their realized net capital gains. The Total International Stock fund would go into my taxable account (two reasons--I can then recover all or most of the foreign tax withholding as a tax credit on the 1040 and second I will get the qualified dividend rate).