In this article, we will take a look at the 13 best Vanguard funds for retirement. To see more such funds, go directly to 5 Best Vanguard Funds for Retirement.
Retirement planning is becoming an extremely important matter for millions of Americans who are fast approaching their retirement age. Millions of Baby Boomers retire each year, while millennials are increasingly joining the ranks of those who are starting to think about their retirement. The rising inflation, rate hikes and the global economic situation has created new worries for those who are planning for retirement.
In a latest survey by nonprofit Employee Benefit Research Institute, 64% of the surveyed people who are still working said that they feel confident about their financial prospects during retirement. This figure stood at 73% last year. Just 18% of the surveyed were “very confident” this year, down from 30% a year ago.
The survey also included Americans who have already retired. 73% of this demographic said they are somewhat or very optimistic about their ability to live comfortably during retirement, down from 77% last year.
These data points show how volatility in the market caused by inflation and rates hikes are affecting retirees or people planning for retirement.
Pension funds are also facing the heat of the current economic crisis. A Wall Street Journal report in December 2022 mentioned data from Wilshire Trust Universe Comparison Service which showed that cash holdings hit 1.9% of assets at state and local government pension funds and 1.7% of assets at corporate pension funds as of June 30, much lower than the 15-year average of 2.45% for public pensions and 2.07% for corporate pensions. The recent figures are lower than those recorded in 2008, when some retirement funds had to sell whatever they could to pay benefits during the financial crisis. As demand of pension checks rises, pension funds are finding it difficult to maintain a balance of cash payments and contributions. The WSJ report said that when interest rates were low, pension funds were making risky bets to increase their earnings by investing in illiquid assets such as private equity. But as interest rates rose and asset prices were expected to fall further, these pensions funds saw signs of trouble.
How Do Americans Save for Retirement?
Vanguard shares some interesting data that gives some glimpse into how Americans are saving up for retirement. Over the past few years automatic savings features have gained a lot of popularity. As of the end of 2021, 56% of Vanguard plans had adopted automatic enrollment, including 75% of plans with at least 1,000 participants. Americans are also preferring professionally managed accounts and services to prepare for retirement. At the end of 2021 a whopping 64% of all Vanguard participants were solely invested in an automatic investment program, compared to just 7% the end of 2004.
Vanguard offers several target-date funds for retirement (you will find some of those funds in our list). These funds are also gaining popularity. The Vanguard report said that 56% of all its participants were invested in a single target-date fund. Because of their rising popularity 95% of plans offered target-date funds at the end of 2021, up from 84% in 2012.
Warren Buffett's Thoughts on Retirement Planning
Who can offer better guidance on amassing wealth and retirement planning that the Oracle of Omaha Warren Buffett. The legendary billionaire in his 2014 letter to Berkshire shareholders had shared some interesting insights about how fear of stock price volatility often prevents people from investing smartly for their retirement. They end up investing in apparently “safe” options that often give nothing in the long term, according to the billionaire. Buffett also highlights the importance of investing in low-cost index funds for retirement as they give both dividends and principal investment appreciation.
Here’s what Buffett said:
“If the investor, instead, fears price volatility, erroneously viewing it as a measure of risk, he may, ironically, end up doing some very risky things. Recall, if you will, the pundits who six years ago bemoaned falling stock prices and advised investing in “safe” Treasury bills or bank certificates of deposit. People who heeded this sermon are now earning a pittance on sums they had previously expected would finance a pleasant retirement. (TheS&P 500 was then below 700; now it is about 2,100.) If not for their fear of meaningless price volatility, these investors could have assured themselves of a good income for life by simply buying a very low-cost index fund whose dividends would trend upward over the years and whose principal would grow as well (with many ups and downs, to be sure). Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do.
For this article we scoured Vanguard’s retirement-related offerings and picked 13 funds that are considered safe and popular among retirement experts and market analysts. How did we decide which funds to choose? We scoured several Reddit threads related to retirement where thousands of people have shared their retirement strategies related to investing in Vanguard funds. These subreddits include r/personalfinance, r/Bogleheads, r/financialindependence, r/FIRE, r/investing, r/retirement, among many others. We also went through notable finance websites and consulted sources like Dave Ramsey’s media, books like The Barefoot Investor, Ramit Sethi’s text, among other resources.
Some of the notable stocks among the holdings of these funds include Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), NVIDIA Corporation (NASDAQ:NVDA) and Alphabet Inc. (NASDAQ:GOOG).
Best Vanguard Funds for Retirement
13. Vanguard Target Retirement 2060 Fund (NASDAQ:VTTSX)
Vanguard Target Retirement 2060 Fund is quite popular in retirement communities on Reddit. According to Vanguard, this fund is suitable for those who are eyeing to retire between 2058 and 2062. The fund provides diversification to investors while “incrementally decreasing exposure to stocks and increasing exposure to bonds as each fund’s target retirement date approaches.”
Vanguard Total Stock Market Index Fund Institutional Plus Shares accounts for about 54% of the total fund while 36.50% is taken by Vanguard Total International Stock Index Fund Investor Shares.
12. Vanguard Information Technology Index Fund (NYSE:VGT)
The IT revolution is nowhere near its peak as several transformational innovations like AI, automation, robotics, IT in healthcare are just getting started. The Vanguard Information Technology Index Fund gives exposure to some of the top and safest IT stocks that will be at the forefront of innovations that are going to take place in the decades to come. The ETF’s top stock holdings include Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), NVIDIA Corporation (NASDAQ:NVDA), Visa Inc. (NYSE:V), Accenture Plc (NYSE:ACN), among others.
11. Vanguard Russell 1000 Growth Index Fund (VRGWX)
Staying invested in growth stocks for the long term often gives strong returns. VGGWX invests in the Russell 1000 Growth Index. This exposure to some of the top US growth stocks is one of the efficient ways to generate long-term gains. Some of the stocks you will gain exposure to via this fund include Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT),Amazon.com, Inc. (NASDAQ:AMZN), NVIDIA Corporation (NASDAQ:NVDA) and Alphabet Inc. (NASDAQ:GOOG).
10. Vanguard LifeStrategy Conservative Growth Fund
This fund, as the name suggests, offers low-risk and low to moderate capital appreciation opportunities. The fund holds 60% of its assets in bonds and the rest in stocks. Vanguard Total Bond Market II Index Fund accounts for about 41% of the fund, while Vanguard Total Stock Market Index Fund Investor Shares takes up about 23% of the fund.
9. Vanguard Total Stock Market Index Fund (NASDAQ:VTSMX)
This fund uses an indexing investment approach to track the performance of the index which represents approximately 100% of the investable U.S. stock market. Some of the notable stocks this fund will give you exposure to include Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Alphabet, NVIDIA Corporation (NASDAQ:NVDA), and Berkshire Hathaway Inc. (NYSE:BRK-B).
8. Vanguard Total Stock Market ETF
One of the best ways to hedge risks and diversify your bets include betting on the total stock market of the US instead of picking individual stocks. The Vanguard Total Stock Market ETF is one of the best Vanguard funds for retirement according to Redditors and market analysts.
The ETF, which seeks to track the performance of the CRSP US Total Market Index, gives you exposure to some of the biggest names like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Exxon, Meta Platforms, among many others.
7. Vanguard Mid-Cap Index Fund Admiral Shares (NASDAQ:VIMAX)
Those who are interested in investing in mid-caps and reaping profits from stock appreciation of companies in the future should look into VIMAX. According to an S&P Global report, mid-cap stocks outperformed the S&P 500 and the S&P SmallCap 600 most of the time in the 20-year period ending August 31, 2015. Some of the top stocks in the portfolio of VIMAX include Motorola Solutions Inc. (MSI), Amphenol Corp. (APH), Corteva Inc. (CTVA) and Realty Income.
6. Vanguard Total Intl Stock Index Fund (NASDAQ:VXUS)
Having exposure to international markets is one of the best ways to diversify your portfolio. In fact, international and emerging markets posted better returns when compared to the US stock market ever since the market turmoil in the US started.
A study shows that over the past 65 years, a hypothetical portfolio of 70% U.S./30% international stocks produced better risk-adjusted returns than an all-US portfolio.
Ross Mayfield, an investment strategy analyst at Baird Private Wealth Management, explained the importance of having exposure to the international stock markets to CNBC in these words:
“International stocks are set up quite well. If you’re heavily [allocated] to U.S. stocks, you may want to revisit why that is, and whether a more diversified approach would be appropriate.”
