While mutual funds have long been a staple for retail investors, their modernized counterparts — exchange-traded funds (ETFs) — are becoming increasingly diverse and complex.
In 2024 alone, the investment world saw the launch of ETFs that hold spot cryptocurrencies like Bitcoin (BTC) and Ether (ETH). Moreover, issuers like Apollo Global Management Inc. (ticker: APO) and State Street Corp. (STT) are pushing the boundaries of what ETFs can hold, venturing into illiquid assets like private credit.
[Sign up for stock news with our Invested newsletter.]
The market is also seeing an influx of highly specialized, niche ETFs — from those offering leveraged and inverse exposure to single stocks through synthetic means, like derivatives and swaps, to thematic ETFs targeting very specific industries such as global K-Pop. With these developments, the array of options available to investors has never been more varied — or bewildering.
Despite these innovations, beginner investors are best served by sticking to the fundamentals: opting for low-cost, broadly diversified funds that avoid the use of derivatives and leverage. For those new to investing, sticking with a trusted name like Vanguard can be particularly advantageous.
“Beginner investors should consider Vanguard funds for their low costs, diversification across asset classes and regions, simplicity, and robust investor education resources,” says Sean August, CEO of the August Wealth Management Group. “In addition, Vanguard’s reputable status and client-owned mutual structure help instill trust and prioritize investor interests.”
Here are seven of the best Vanguard funds for beginner investors:
| Vanguard Fund | Expense Ratio |
| Vanguard S&P 500 ETF (ticker: VOO) | 0.03% |
| Vanguard Total Stock Market ETF (VTI) | 0.03% |
| Vanguard Balanced Index Fund Admiral Shares (VBIAX) | 0.07% |
| Vanguard U.S. Quality Factor ETF (VFQY) | 0.13% |
| Vanguard Dividend Appreciation ETF (VIG) | 0.06% |
| Vanguard LifeStrategy Growth Fund (VASGX) | 0.14% |
| Vanguard Target Retirement 2060 Fund (VTTSX) | 0.08% |
Vanguard S&P 500 ETF (VOO)
Some investors may be hesitant to start investing given the upcoming 2024 presidential elections, but experts urge keeping a long-term perspective. “Historical data strongly supports market participation during presidential election years, with the S&P 500 delivering positive returns in over 80% of election cycles since its inception,” says Henry Yoshida, CEO and co-founder of Rocket Dollar.
If you have a long time horizon — i.e., investing for retirement — then a low-cost S&P 500 index ETF like VOO could be a good holding. This ETF starts at around $532 per share and charges a very low 0.03% expense ratio. “The combination of minimal investment requirements and the opportunities presented by the upcoming presidential election makes market participation more accessible than ever,” Yoshida says.
[SEE: 7 Best Dividend Growth Stocks to Buy Today]
Vanguard Total Stock Market ETF (VTI)
“For investors seeking broader diversification beyond the S&P 500’s current concentrations — where seven stocks comprise over 30% of the index — VTI offers more comprehensive market exposure,” Yoshida explains. Unlike the S&P 500, the CRSP US Total Market Index tracked by VTI includes several thousand more mid- and small-cap stocks, making it more diversified than VOO.
Despite its broader scope, VTI’s top holdings still resemble those of VOO due to the market-cap weighting of the CRSP US Total Market Index that VTI tracks, which naturally emphasizes larger companies similar to those that dominate the S&P 500. Historically, both ETFs have delivered similar total returns. VTI also charges a low 0.03% expense ratio.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
When it comes to picking the right Vanguard fund, August suggests a two-step evaluation process. “Firstly, assessing the fund’s investment objective is crucial to ensure alignment with personal investment goals, whether it involves growth, income or a combination of both,” August says. “Next, evaluate the fund’s risk profile to match it with your risk tolerance, and compare expense ratios.”
For example, an investor looking for a blend of growth potential and some income may prefer a balanced mutual fund like VBIAX. This fund allocates 60% to U.S. stocks and 40% to U.S. bonds, making it best suited for investors with a moderate risk tolerance. Because it uses low-cost index funds as its base, VBIAX is able to keep overall expense ratios low at just 0.07%.
Vanguard U.S. Quality Factor ETF (VFQY)
“Less-experienced investors may benefit from focusing on well-diversified funds with an emphasis on higher-quality securities,” says David S. James, managing director at Coastal Bridge Advisors. “Inevitably, the markets will correct at some point, and that is likely to touch any newbie’s nerves, but knowing that you own high-quality securities can help you get through a tough period of time.”
For this role, Vanguard offers VFQY. This ETF doesn’t track an index. Instead, VFQY utilizes a proprietary quantitative framework to systematically select U.S. stocks with strong profitability and healthy balance sheets. Notable top holdings include blue-chip stocks like Apple Inc. (AAPL), Walmart Inc. (WMT), 3M Co. (MMM) and Nike Inc. (NKE). VFQY charges a 0.13% expense ratio.
Vanguard Dividend Appreciation ETF (VIG)
Another way beginner investors can target high-quality stocks is via a dividend growth ETF like VIG. This Vanguard fund tracks the S&P U.S. Dividend Growers Index, which requires holdings to possess at least 10 consecutive years of dividend growth. In addition, VIG’s benchmark excludes the top 25% highest-yielding stocks to remove “yield traps,” which are dividend stocks with poor fundamentals.
The result is a fairly diversified portfolio of over 330 blue-chip dividend payers, including Apple, Microsoft Corp. (MSFT), JPMorgan Chase & Co. (JPM), Exxon Mobil Corp. (XOM), UnitedHealth Group Inc. (UNH), Visa Inc. (V) and Procter & Gamble Co. (PG). VIG currently pays an above-average and fairly tax-efficient 1.7% 30-day SEC yield and charges a low 0.06% expense ratio.
Vanguard LifeStrategy Growth Fund (VASGX)
“For investors who want a low-cost, globally diversified portfolio of stocks and bonds that maintains a consistent risk position, there’s the Vanguard LifeStrategy Funds,” says Michael Roach, head of multi-asset portfolio management at Vanguard. “The LifeStrategy Funds feature a consistent asset allocation at various levels of risk (i.e., 80% stocks and 20% bonds, 60/40, 40/60 and 20/80).”
Beginner investors with a high-risk tolerance and long-time horizon will likely opt for VASGX, which offers a globally diversified 80% stocks and 20% bond allocation. Periodically, Vanguard will rebalance this fund to bring it back to this target allocation, systematically buying low and selling high. VASGX charges a 0.14% expense ratio but does require a $3,000 minimum initial investment.
Vanguard Target Retirement 2060 Fund (VTTSX)
“The Vanguard Target Retirement Funds offer a globally diversified portfolio of stocks and bonds in a single fund that changes its asset allocation as investors move closer to retirement,” Roach says. “Investors need only to pick the fund with the date closest to when they expect to retire, and the Target Retirement Fund takes care of the rest.” If you want to retire around 2060, the fund to pick is VTTSX.
“When investors are just starting to save for retirement in their 20s and 30s, the funds maintain a more aggressive allocation to stocks,” Roach explains. “As investors get closer to retirement, the allocation gets more conservative.” Right now, in 2024, VTTSX allocates 90% to global stocks and 10% to bonds. The fund charges a 0.08% expense ratio and requires a $1,000 minimum initial investment.
More from U.S. News
7 ETFs to Hedge Against a Stock Market Crash
7 of the Best Tax-Free Municipal Bond Funds
7 of the Best Growth Funds to Buy and Hold
7 Best Vanguard Funds for Beginner Investors originally appeared on usnews.com
Update 10/28/24: This story was previously published at an earlier date and has been updated with new information.