10 Best-Performing Vanguard Mutual Funds

Vanguard's well-established mutual funds and exchange-traded funds have long been a mainstay in 401(k)s, pension plans, IRAs and managed portfolios. They offer a cost-effective way to create a diversified portfolio without having to pick and manage the assets on your own.

Here are the top 10 Vanguard mutual funds this month by five-year performance, plus their expense ratios.

Why are Vanguard mutual funds so popular?

Vanguard excels at the two main things that make investors happy: Choice and low fees.

Choice

Vanguard’s comprehensive stable of mutual funds allows it to fill every niche of an investor’s asset allocation needs. In addition to active and passive mutual funds, Vanguard also offers target-date funds and exchange-traded funds (also known as ETFs).

Target-date retirement funds contain a mix of Vanguard’s broadest index funds that gradually shift toward more conservative investments as your retirement date draws near. These funds are popular in employer-sponsored retirement plans, such as 401(k)s.

ETFs are bought and sold like individual stocks. They offer investors the opportunity to purchase a small stake in most of Vanguard’s funds at a much lower entry price — the cost of a single share versus the higher Vanguard fund investment minimum.

» Dive deeper into how ETFs work

Low fees

Almost all mutual funds and ETFs charge an expense ratio to cover administrative expenses, management salaries and other overhead costs. According to Vanguard, its average index mutual fund and ETF expense ratio is 0.07%, which is quite a bit lower than the industry standard of 0.44%. Lower fees mean more of your money remains invested in the market.

Although a few fractions of a percent may not seem like much of a difference, it adds up over time. Let’s say you have $50,000 that you want to keep invested for 30 years, and the annual return is 6%. A Vanguard fund with an expense ratio of 0.07% would grow to $281,539. In a different fund with an industry average expense ratio of 0.44%, your investment would grow to $253,485. That’s a difference of over $28,000 in just fees.

» Examine the cost: Calculate the impact of fees on mutual fund returns

How to buy Vanguard mutual funds

1. Choose an account to invest with

401(k): The easiest way to buy Vanguard mutual funds is through your 401(k) or 403(b) if you have access to one. These accounts help you sidestep Vanguard’s investment minimums. But, because of retirement plan fees, the expense ratios may be higher than what you’d pay if you bought the same funds directly through Vanguard or even another discount broker.

Individual retirement account (IRA): You can also access Vanguard funds through an IRA, which is another kind of tax-advantaged retirement account. You can open an IRA directly through Vanguard, where you can purchase their proprietary funds at no cost, or with another provider if you’re willing to pay potential commissions to stick with a preferred platform.

General brokerage account: If saving for retirement isn’t the goal, you can also invest in Vanguard funds through a regular brokerage account. This type of account lets you withdraw investment earnings at any time, though there are some tax consequences to navigate. You might be able to invest in Vanguard mutual funds through other brokers as well, but that’ll typically come with additional fees.

• Learn how to open a brokerage account

• Read our review of Vanguard’s brokerage account

2. Research and choose your funds

Vanguard has a lot of funds to choose from. To narrow down your options, decide between active and passive management first.

Actively managed funds have investment pros analyzing and picking which stocks to hold to try to beat average market returns. The management fees for actively managed funds tend to be higher than those for passively managed funds. Despite those higher fees, actively managed funds often underperform their market benchmarks.

Passively managed funds seek to match the returns of a broad market index (like the S&P 500). They often outperform actively managed funds, making them a good choice for most investors. Passive funds also tend to have lower fees than actively managed funds, since they require less oversight.

Next, you’ll want to identify the types of funds you're interested in and review their minimum investments. Vanguard's mutual fund minimums (the amount of money you need to start investing) trend high, so if you're looking to get started with less, you may want to explore Vanguard’s ETFs or look elsewhere. Here are Vanguard's minimums:

Vanguard's mutual fund filtering tool can help you find the exact funds you're looking for. You can filter funds by risk tolerance, investment minimum, tax efficiency, region and more.