Good choice! Investing in Vanguard Funds is a good place to start your investing career. To start, you need to understand what your investing objectives are. For this article, I am going to make several profiles with various assumptions:
- You are a young person 25 to 29 years old.
- You have job and can invest $100 per month after all bills and living expenses are taken care of.
- Your job has a 401K and you are contributing for retirement
- You have saved $3000 to invest in a mutual fund.
- Your goal is to build additional capital for investing
- Your risk tolerance is high
For this type of investor, an aggressive stock fund would be the way to go. They have all their bases covered and are trying to build wealth. The $3000 is the minimum needed to get into various stock funds that will provide a higher rate of return.
I would suggest the following five funds to pick from. Depending on what the individual preference is, any one of the five will meet the objectives of starting with an aggressive fund.
- Vanguard Capital Opportunity Fund – Mid growth stock fund with high risk (5 on a scale of 5). Currently has 120 stocks with 36.95% in Healthcare.
- Vanguard Dividend Growth Fund– Large Blend stock fund with moderately high risk (4 on a scale of 5). Currently has 50 stocks, 19.14% in Industrials, 18.21% in Healthcare and 15.27% in Consumer defensive.
- Vanguard Mid–Cap Growth Fund – Mid-growth stock fund with high risk (5 on a scale of 5). Currently has 121 stocks, 23.62% in Industrials, 20.24% in consumer cyclical and 18.30% in Technology.
- Vanguard Small-Cap Value Index – Small value stock fund with high risk (5 on a scale of 5). Currently has 1004 stocks, 22.67% in financial services, 16.41% in Real Estate and 16.05% in Industrials.
- Vanguard Strategic Equity Fund – Mid blend stock fund with high risk (5 on a scale of 5). Currently has 420 stocks, 18.19% in Industrials, 15.12% Consumer cyclical and 12.17% in Financial services.
Putting $100 a month into one of the above funds, after two years of investing, contact Vanguard to see about diversifying into another fund. They will be on their way to building a substantial wealth base.
- In your 40’s.
- Have saved some money – $5000
- Monthly bills and mortgage leaves you with $100 a month to add to savings.
- Starting to wonder about retirement and how to save for it.
- Risk tolerance is moderate.
For this type of investor, a balanced fund would be ideal as you have some growth and risk, but there is a stable income from bonds. Here are the five funds I would suggest picking from. Note: all suggested funds have moderate risk (3 on a scale of 5).
- Vanguard Wellesley Income Fund – Balanced fund with an expense ratio of 0.25%. Currently has 64 stocks (13.30% of assets invested in the top ten stocks), 16.47% in Industrials, 16.37% in Consumer defensive and 14.56% in Healthcare. Current number of bonds – 696 with an average maturity of 9.4 years and average coupon of 3.9%.
- Vanguard Wellington Fund – Balance fund with and expense ratio of 0.25%. Currently has 102 stocks (16.40% of assets invested in the top ten stocks), 18.24% in Financial services, 16.11% in Healthcare and 13.45% in Industrials. Current number of bonds – 599 with an average maturity of 9.2 years and average coupon of 3.9%.
- Vanguard Star Fund – Balanced fund with expense ratio of 0.34%. Currently has 8 investments. Note, this fund currently has 62.80% of monies invested in the following Vanguard Funds:
- Vanguard Windsor II
- Vanguard International Growth Fund
- Vanguard International Value Fund
- Vanguard Windsor Fund
- Vanguard PRIMECAP Fund
- Vanguard Morgan Growth Fund
- Vanguard U.S. Growth Fund
- Vanguard Explorer Fund
- Vanguard Balanced Index Fund – Balanced fund with an expense ratio 0.24%. Currently has 3141 stocks (8.80% of assets invested in the top ten stocks), 16.71% in Technology, 13.59% in Financial services, and 12.17% in Industrials. Current number of bonds – 4521 with an average maturity of 7.2 years and average coupon of 3.4%
- Vanguard Life Strategy Mod Growth – Balanced fund with an expense ratio of 0.16%. This fund has 60% of its assets invested in the Vanguard Total Stock Market Index Fund and the Vanguard Total International Stock Index Fund. This fund is an “index fund” of index funds. 40% of the fund is invested in bonds.
As you can see, the above funds will allow you to gain growth with some steady income from bonds. I would recommend the STAR Fund as a first investment. They will open it with $1000. You can then choose to pick another fund – I would suggest the Wellington Fund as is weighted more in stocks (66.72%). With purchasing two funds, you can add to each and still get a good diversified portfolio.
Going into Retirement:
You are about to go into retirement. You need to save and invest your capital so you can have a steady income for the rest of your life. Often this comes from the sale of your home or other assets. Purchasing an annuity or annuities is a way to take the burden of managing your assets long term and have a guaranteed income.
Vanguard offers annuities that can give you guaranteed payments, guaranteed payments with growth potential and ones that provide steady income, growth potential and market protection.
For every beginning investor, the most important thing is to get started. The sooner you start your money working for you, the better.