Last Updated on March 9, 2021 by pf team
With funds dating as far back as 1929, it’s safe to say Vanguard funds has a proven track record of performance in fund management.
As the 2nd largest mutual fund company with $5.6 trillion in managed global assets, you can expect plenty of great choices from Vanguard. Here, we detail 15 Vanguard funds with the highest annual returns since inception.
Why choose Vanguard Funds
Of the largest mutual fund companies, a handful have become household names. Vanguard stands out from the crowd, however, becoming nearly synonymous with mutual funds in the minds of investors.
While familiarity lends trust, there’s more depth to consider when choosing where to invest your money.
Who is Jon C. Bogle?
The Vanguard story begins with John C. Bogle, the founder of The Vanguard Group and bestselling author.
Whether you’re new to investing or you’re looking for some new insights to help your game, consider picking up a copy of John Bogle’s “The Little Book of Common Sense Investing”.
The “Little Book” makes investment ideas easy to understand and encourages the reader to invest using common sense principles anyone can apply.
The first index fund
Most of us are familiar with index funds, at least in name, although we may not know their origin. John Bogle started the first index fund for individual investors back in 1975, paving the way for hundreds of similar funds and derivatives.
Now, both index funds and index ETFs are a part of millions of portfolios. The First Index Investment Trust, founded in 1975, wasn’t well received at first.
Many in the industry referred to the fund as “Bogle’s Folly” because the fund’s strategy aimed to outperform seasoned advisors by simply tracking an index.
The fund was later renamed to the Vanguard 500 Index Fund, which tracks the S&P 500 index and still exists today, having outlived its founder.
His investment philosophy
Even after his passing early in 2019, John Bogle’s investment philosophy remains relevant and continues to influence Vanguard funds and the industry as a whole.
Wherever you find low-cost funds or index funds, you can thank John Bogle and his insightful views on keeping trading costs down and keeping investment management simple.
How we created the list of Vanguard funds
Vanguard funds are known for being low cost but we wanted to build a list that offered more than just efficiency. Business owners and investors know you can’t save your way into a profit. You’ll also need growth and the safety of diversification.
We put our stock screener to work, looking for specific criteria.
- Annual return higher than 9%: We wanted a list of funds with a respectable average return.
- Lowest management fees: Fees matter so we set a cap at 0.16%. The lowest fee in our list comes in at a miserly 0.03%. The savings translate to gains in performance.
- Diversification: The old adage about eggs and baskets never loses its relevance. We looked for funds with diversification, although some are specific to one asset class. Expect to find funds focused on bonds, US investments, and international investments.
Vanguard ETFs vs. Vanguard mutual funds
Our list covers both ETFs and mutual funds, so it’s important to discuss some features and restrictions of each.
- Administration fee: ETFs often have lower fees. Fees for ETFs featured in our list range from 0.03% to 0.32%. By comparison, fees for mutual funds in the list range from 0.04% to 0.94%.
- Minimum initial investment: If you’re investing with Vanguard ETFs, the entry price is equal to the price of one share plus any trading fees. However, to invest in a vanguard mutual fund on our list you’ll need between $1,000 and $3,000 to get started.
- Automatic investments and withdrawals: To fully leverage dollar cost averaging, Vanguard mutual funds are often a better solution because they support automatic investments and withdrawals. ETFs often require a more hands-on approach, although some brokers offer tools to help automate buying and selling.
Why fees matter so much when choosing a fund
The average expense ratio for mutual funds can run as high as 2.5%. None of the funds or ETFs featured on our list approach that level.
However, the difference in cost from the lowest fees on our list (0.03%) to the highest fees (0.94%) can make a measurable difference to your long-term returns.
For example, consider the performance of funds with a 9% average return before expenses:
|Value after |
with 0.03% fee
|Value after |
with 0.94% fee
With a higher-cost fund, over 20% of your initial investment is lost to fees.
Exchange-traded funds often have lower expense ratios and may offer better performance in a taxable investment account. Additionally, the price of entry is only the cost of one share. Here are 7 picks to consider.
US large-cap stock ETFs: VOO (S&P 500 ETF)
Vanguard’s S&P 500 ETF invests in 500 of the largest companies in the US. This gives you an investment stake and many of the brands you know and use daily.
Since the index’s inception in 1926 as The Composite Index, the S&P has provided investors with impressive annual growth and a healthy dividend stream.
Vanguard’s S&P 500 ETF gives you exposure to powerhouse companies with a low expense ratio of 0.03%. Similar funds have an average expense ratio approaching 1%, and many are even higher.
Because the fund invests in 500 companies, your investment is instantly diversified across several leading industries in the US and throughout the world. You can buy VOO through a Vanguard brokerage account or through other major brokers.
US mid-cap stock ETFs: VO (Mid-Cap ETF)
Some investors may prefer the growth potential available with mid-cap and small-cap companies. For example, Intel, the world’s largest chipmaker is part of the large-cap S&P 500.
However, Advanced Micro Devices Inc. (AMD) makes processors that operate many of today’s computers and devices. AMD is among the largest holdings in Vanguard’s VO mid-cap ETF.
Financials, industrials, and tech companies make up the fund’s largest holdings by percentage.
The expense ratio for Vanguard’s VO mid-cap etf is lower than average at only 0.04%. By comparison, competing funds have an average expense ratio of over 1%.
VO tracks the CRSP US Mid Cap Index, which targets over 300 US companies. You can buy Vanguard’s VO ETF directly through Vanguard with a brokerage account.
US small-cap stock ETFs: VBK (Small-Cap Growth ETF)
With total assets of over $24 billion, Vanguard’s VBK Small-Cap Growth ETF includes 621 stocks in 10 sectors. Healthcare and financials top the fund’s largest investment sectors, followed by technology company holdings.
Top holdings include companies like Zebra Technologies Corp., Burlington Stores Inc., both of which operate in retail. Zebra makes equipment used in retail point-of-sale and inventory management.
A $10,000 investment in VBK in 2009 would be worth nearly $38,000 in 2019. Of course, Vanguard’s low management fees deserve part of the credit.
VBK boasts a low expense ratio of 0.7%, whereas competitors have an average expense ratio of 1.23%. Over a 10-year investment period with 9% average annual return, Vanguard estimates you can save as much a $2,600 in fees by choosing VBK.
International stock ETFs: VSS (FTSE All-World ex-US Small-Cap ETF)
In today’s global economy, a well-rounded portfolio often includes international stocks. Following the growth trends found in Vanguard’s US small-cap funds, VSS seeks dynamic growth through small-cap international companies.
Vanguard rates small-cap funds as riskier than average but also hopes for higher average returns. Over 21% of the fund’s investments are in emerging markets.
European companies make up more than a third of investments. North American companies like Canada’s OpenText and Algonquin Power & Utilities Corp. make up nearly 15% of the fund’s holdings.
Fees are low for VSS, with the fund’s expense ratio coming in at just 0.12%. By comparison, competing international small-cap funds have an average expense ratio over 10 times as high at 1.44%
US bond ETFs: EDV (Extended Duration Treasury ETF)
Bonds offer a great way to diversify and Vanguard’s EDV Extended Duration Treasury ETF focuses on the long game with US treasury long bonds.
In total, the fund holds nearly $3 billion with 100% of its investments in US government bonds. The fund tracks a benchmark index and returns have proven strong with a 160% return over the past 10 years and an annualized ROI of just over 10%.
Low fees enhance returns with the expense ratio for EDV coming in at just 0.07%. Competing long-bond funds are more expensive to own at an average expense ratio of 0.58%.
Over a decade, your savings could add up to several hundred dollars from lower fees, leaving you with more money to invest.
International bond ETFs: BNDW (Total World Bond ETF)
With Vanguard’s Total World Bond ETF, you aren’t investing exclusively in US government bonds. Instead, the fund holds bonds from a number of regions, although purchases are made indirectly by purchasing other ETFs.
Vanguard’s Total World Bond ETF’s holdings are split almost evenly between the Vanguard Total International Bond ETF and the Vanguard Total Bond Market ETF. In total, the fund holds assets representing over 15,000 bonds with nearly $205 million invested.
The lion’s share of the fund’s market allocation goes to US bonds. Bonds from Japan make up over 10%, while bonds from France and Germany each represent over 5% of the fund’s allocation.
As with many other Vanguard funds, the expense ratio for BNDW is low, measuring only 0.09%. Comparable funds from other providers average nearly 1% in fees.
Sector & specialty ETFs: VGT (Information Technology ETF)
Owning stocks in the tech sector can be as exciting as a roller coaster ride but VGT’s 10-year performance looks more like the ascent than the decline.
Like any investment, expect some ups and downs. However, VGT’s tech-heavy holdings would have grown a $10,000 investment to more than $50,000 over the past 10 years.
If you look around the average American home, you’ll see the brands owned by VGT, including Apple and Microsoft. However, the fund also owns shares and Visa and Mastercard, which probably played a role in purchasing that tech gear we all use.
You’ll also own shares in Intel, IBM, and Adobe when you buy VGT. Outsized returns can grow even faster thanks to vanguard’s low fees.
VGT’s expense ratio comes in at 0.10%, which is less than 1/10 the average 1.3% expense ratio for competing funds. Over 10 years, Vanguard estimates a savings of more than $2,500 due to lower fees.
Vanguard Mutual funds
Long before ETFs came along, mutual funds offered the easiest way to diversify. In many ways and for some investors, mutual funds may still be a better option than ETFs. Consider these 8 low-cost mutual funds from Vanguard and if you are close to retirement you might want to read about vanguard target retirement funds.
US large-cap stock funds: VFTAX (FTSE Social Index Admiral Shares)
When you’re investing for the long-term, gains may not be your only consideration. Vanguard’s FTSE Social Index Admiral Shares looks for long term gains while also being mindful of environmental and social criteria.
Let’s face it, not all businesses put people and the planet first. VFTAX screens for companies that match certain social and environmental goals, which allows you to invest while also supporting companies that share some of your values.
Top holdings for VFTAX include technology stocks at nearly 30% of holdings as well as healthcare and financial stocks. You’ll spend just 0.14% on fees, which compares well to an average expense ratio of over 1% for competing funds.
Minimum investment: $3,000
US mid-cap stock funds: VMVAX (Mid-Cap Value Index Admiral Shares)
If you’re a fan of mid-cap value investing, you’ll feel right at home with VMVAV, Vanguard’s Mid-Cap Value Index Admiral Shares fund. $10,000 invested in this fund, which started in late 2010, would be worth nearly $28,000 today.
The fund tracks an index and invests in companies which may be undervalued. As a value investor, you know that means a goal of long-term gains. However, you can expect a bit of volatility along the way.
This is common for mid-cap stocks, particularly those moving toward their true long-term value.
Fees are low with a 0.07% expense ratio. With a $10,000 investment, fees alone can save you nearly $2,300 over 10 years when compared to similar funds.
Minimum investment: $3,000
US small-cap stock funds: VSGAX (Small-Cap Growth Index Admiral Shares)
Small-cap stocks can offer dynamic growth and even in the short history of VSGAX, the opportunity is clear. Similar to its sibling fund, VSGAX was started late in 2010. $10,000 invested in the fund have inception would be worth nearly $28,000 in 2019.
This fund is also available as an ETF (VBK), which we highlighted earlier. The fund owns a total of 621 stocks with a median market cap of $5.1 billion.
Fees won’t get in the way of growth with VSGAX. You’ll pay just 0.07%, whereas competing funds charge an average of 1.23% annually. That’s big savings that can add up to thousands of dollars over time.
Minimum investment: $3,000
Balanced target-date funds: VFFVX (Target Retirement 2055)
What if there was a fund that could adjust your asset allocation automatically as you get closer to retirement? VFFVX might be just what you were looking for if your target retirement date is between 2053 and 2057.
The fund invests in 4 of Vanguard’s own index funds, giving you a well-diversified portfolio. However, about 10% of the fund’s assets are held in bonds, providing an extra measure of safety.
Overtime, expect your portfolio to shift from equities to bonds, preserving the gains you’ve earned over the years.
Vanguard’s Target Retirement 2055 fund is a long-term play, so fees matter. Fortunately, you’ll pay only 0.15% as an expense ratio, while similar funds have an average expense ratio more than triple that of Vanguard’s.
Minimum investment: $1,000
International stock funds: VTWAX (Total World Stock Index Admiral Shares)
It’s a big world out there and while the US is home to some of the world’s most successful companies, international stocks can help build a well-diversified portfolio.
Vanguard’s Total World Stock Index Fund gives investors access to stock markets both in the US and beyond. Over 40% of the fund’s assets are invested outside of North America.
VTWAX, started in early 2019, is a relative newcomer to the Vanguard fund family. However, early results are promising. For example, $10,000 invested at the fund’s inception would be worth over $11,000 less than a year later.
A low expense ratio of 0.10% provides a cushion to short-term volatility and helps you build long-term gains.
Minimum investment: $3,000
Money market funds: VMMXX (Prime Money Market)
Stock market gains seem to get all the headlines, but diversified investors realize the importance of current income combined with capital preservation.
Vanguard’s Prime Money Market Fund seeks to maintain a net asset value of $1 while also paying a healthy dividend.
This fund has been a staple for income investors since 1975, returning an average annual return of nearly 5% since its inception. When combined with stable value, that means you’re being paid to be safety-minded in your investments.
Expect to invest at least $3,000 to get started. This might make VMMXX a great place to park money while between investments or as approaching retirement.
Minimum investment: $3,000
US bond funds: VBLAX (Long-Term Bond Index Admiral Shares)
Bond investing is tricky business but Vanguard’s Long-Term Bond Index Fund takes the guesswork out of investing in bonds while also keeping you well diversified.
You’ll gain to US-based investment-grade bonds, with an asset mix up about 60% corporate bonds. The remaining 40% is invested in US government bonds.
As another new arrival to the Vanguard fund family, VBLAX is already performing well. Although less than a year old, the fund has already returned nearly 12%.
Low management fees should help long-term performance. At 0.07%, VBLAX has an expense ratio of about 1/10 the average found with similar funds.
Minimum investment: $3,000
Sector & specialty funds: VGSLX (Real Estate Index Admiral Shares)
Real estate investment trusts (REITs) march to the beat of their own drummer. You’ll typically find high dividends coupled with long-term growth. However, price moves often don’t parallel those of the broad stock market.
Vanguard’s Real Estate Index Admiral Shares Fund offers a great way to diversify your portfolio and gain access to booming real estate markets, while being paid handsomely as you wait for shares to appreciate in value.
A $10,000 investment in 2009 would be worth over $35,000 today in 2019. This performance reflects both dividends and steady increases in net asset value for the fund.
Any landlord will tell you that real estate investing is all about building cash flow. With a low expense ratio of 0.12%, VGSLX keeps more cash flowing your way. You can reinvest or take your dividends as income if needed.
Minimum investment: $3,000
Final thoughts on vanguard funds
Of the many fund providers available to individual investors, Vanguard is probably the most well known. Low fees are just one of the reasons The Vanguard Group has become a trusted name in the business.
You’ll find an ETF or mutual fund for nearly any investment interest, which allows investors to invest according to their comfort level or even their social priorities.
Brokers or advisors who consistently beat the market may be more rare than you realize — especially after fees. With a fund provider like Vanguard, you can take your investment into your own hands.
By choosing the right mix of mutual funds and ETFs, you also add an element of safety that’s hard to duplicate when investing in individual stocks and bonds.