Investing doesn’t need to be complicated. Over decades, I’ve seen that simple, low-cost index funds outperform most actively managed funds. Vanguard, founded by John Bogle, pioneered this approach. If you want steady growth with minimal effort, buy-and-hold Vanguard funds are a solid choice. Below, I break down the six best Vanguard funds to own forever, why they work, and how to use them effectively.
Table of Contents
Why Vanguard Funds?
Vanguard stands out for three reasons:
- Low Expense Ratios – Vanguard funds cost less than most competitors. Lower fees mean more money stays invested.
- Passive Management – Most Vanguard funds track indexes, reducing turnover and tax drag.
- Proven Performance – Decades of data show that index funds beat most active managers over the long run.
Before diving into the funds, let’s clarify a key investing principle: compound growth. The formula for future value (FV) of an investment is:
FV = PV \times (1 + r)^tWhere:
- PV = Present Value
- r = Annual return
- t = Time in years
Even small differences in fees (r) drastically impact long-term wealth. A 0.10% fee versus 1.00% over 30 years can mean hundreds of thousands in lost gains.
The 6 Best Vanguard Funds to Buy and Hold
1. Vanguard Total Stock Market Index Fund (VTSAX)
Expense Ratio: 0.04%
Category: U.S. Equity
This fund holds the entire U.S. stock market—over 3,700 stocks. It’s the ultimate “set it and forget it” investment. Historically, the U.S. market averages about 10% annually before inflation.
Why Hold It?
- Diversification: Exposure to large, mid, and small-cap stocks.
- Tax Efficiency: Low turnover minimizes capital gains.
- Performance: Consistently beats most actively managed funds.
Example: A $10,000 investment growing at 10% for 30 years becomes:
FV = 10,000 \times (1 + 0.10)^{30} = \$174,4942. Vanguard Total International Stock Index Fund (VTIAX)
Expense Ratio: 0.11%
Category: International Equity
This fund covers non-U.S. stocks (~7,500 companies). International diversification reduces reliance on the U.S. market.
Why Hold It?
- Global Exposure: Emerging and developed markets.
- Currency Hedge: Weak dollar periods boost returns.
- Valuation Benefits: Often trades at lower P/E ratios than U.S. stocks.
3. Vanguard Total Bond Market Index Fund (VBTLX)
Expense Ratio: 0.05%
Category: U.S. Bonds
Bonds stabilize a portfolio. This fund holds U.S. government and corporate bonds.
Why Hold It?
- Risk Reduction: Bonds cushion stock market drops.
- Income Generation: Steady interest payments.
- Inverse Correlation: Bonds often rise when stocks fall.
Example Allocation: A 60/40 portfolio (stocks/bonds) historically reduces volatility while maintaining growth.
4. Vanguard Dividend Appreciation Index Fund (VDADX)
Expense Ratio: 0.08%
Category: U.S. Dividend Growth
This fund holds companies with a history of increasing dividends—a sign of financial health.
Why Hold It?
- Income Growth: Rising dividends combat inflation.
- Lower Volatility: Dividend payers tend to be stable.
- Tax Advantages: Qualified dividends taxed at lower rates.
5. Vanguard Real Estate Index Fund (VGSLX)
Expense Ratio: 0.12%
Category: REITs
Real Estate Investment Trusts (REITs) provide property exposure without buying physical assets.
Why Hold It?
- Inflation Hedge: Rents and property values rise with inflation.
- High Yield: REITs must pay 90% of income as dividends.
- Low Correlation: Moves differently than stocks and bonds.
6. Vanguard Balanced Index Fund (VBIAX)
Expense Ratio: 0.07%
Category: Balanced Fund
This fund is 60% stocks, 40% bonds—ideal for hands-off investors.
Why Hold It?
- Automatic Rebalancing: Maintains target allocation.
- Simplicity: One fund does the work of many.
- Lower Stress: Reduces emotional investing mistakes.
Comparing the Funds
| Fund | Expense Ratio | 10-Year Return | Risk Level | Best For |
|---|---|---|---|---|
| VTSAX | 0.04% | 12.1% | High | Core U.S. holding |
| VTIAX | 0.11% | 4.8% | High | International diversification |
| VBTLX | 0.05% | 1.5% | Low | Stability & income |
| VDADX | 0.08% | 10.3% | Medium | Dividend growth |
| VGSLX | 0.12% | 8.2% | Medium | Real estate exposure |
| VBIAX | 0.07% | 7.9% | Medium | All-in-one simplicity |
How to Allocate These Funds
Your allocation depends on age, risk tolerance, and goals. A common strategy is the “120 minus age” rule:
\text{Stock \%} = 120 - \text{Age}Example: A 40-year-old would hold:
- 80% stocks (mix of VTSAX, VTIAX, VDADX, VGSLX)
- 20% bonds (VBTLX)
Rebalance annually to maintain targets.
Final Thoughts
These six Vanguard funds cover all the bases—U.S. and international stocks, bonds, dividends, and real estate. The key is holding them long-term, ignoring market noise, and letting compounding work. I’ve seen too many investors chase hot stocks or time the market, only to underperform a simple index strategy. Stick with these funds, keep costs low, and you’ll likely outperform most professionals over time.
