A pioneer in index-based mutual funds, Vanguard has established itself as a member of the “Big Three” Passive Asset Managers, alongside BlackRock, Inc. (NYSE: BLK) and State Street (NYSE: STT).
Research conducted by Cambridge University reports that the “Big Three” asset managers “constitute the largest shareholder” in 88% of the S&P 500 firms. The key to Vanguard’s success thus far has been the minimal expense ratios it charges clients, alongside access to high quality research on the company’s fund platform.
Since John Bogle’s inception of the Vanguard fund in 1976, index-based mutual funds have been its core investment strategy. While the company offers exchange-traded funds (ETFs) and actively managed funds, this article will focus on index-based mutual funds.
Why Invest in the 5 Best Vanguard Mutual Funds to Buy in 2022?
These funds are excellent options in 2022, after downturns in the market earlier this year. Low expense ratio mutual funds, such as those offered by Vanguard, are desirable, since high expense ratios charge investors increased money for management regardless of stock price stagnation or deflation. Index-based mutual funds also diminish risk for investors, since they diversify away firm-specific risk. Since mutual funds are only traded at day-end Net Asset Value (NAV), they often are more resilient, and held as long-term investments. If you are looking for long-term, appreciating assets to increase wealth, beat inflation, or overall improve one’s financial position, then the following Vanguard mutual funds would be great choices for your portfolio.
1st of 5 Best Vanguard Mutual Funds to Buy in 2022: Vanguard 500 Index Fund Admiral Shares
Vanguard generally offers two types of shares of its funds; admiral shares or investor shares. Admiral shares often have lower expense ratios with an initial investment between $3,000-$100,000. The admiral shares of the Vanguard 500 Index Fund require a $3,000 initial investment. In return, customers pay an extremely low 0.04% expense ratio, made possible by the scale of Vanguard’s operations.
The Vanguard 500 Index Fund Admiral Shares (MUTF: VFIAX) invests primarily in large-cap companies worth more than $10 billion, with a focus on growth-oriented companies. Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Tesla (NASDAQ: TSLA) and Alphabet (NASDAQ: GOOG) are major investments in their portfolio. While the fund is heavily weighted in technology companies, since it was built to match the S&P 500, it is still diversified across more cyclical or defensive sectors.
With over $800 billion in assets and its current managers Donald Butler and Michelle Louie garnering an above average rating by Morningstar, the fund has passively followed the growth of companies in the S&P 500, providing excellent returns for investors. However, note that one drawback of their investment strategy is that “market-cap weighting may expose the index to significant stock- or sector-level concentration during the market’s intermittent manic episodes,” according to Morningstar. This was evident in the late technology bubble of the late 1990s.
2nd of 5 Best Vanguard Mutual Funds to Buy in 2022: Dividend Growth Fund Investor Shares
The investor shares generally have slightly higher expenses than admiral shares, but in the case of Dividend Growth Fund Investor Shares (MUTF: VDIGX), there are no admiral shares available. The fund’s expense ratio lies near 0.26%, lower than the category average of 0.82%. This makes it a very low-expense fund for those interested in dividend growth-style companies. The minimum initial investment is $3,000.
This fund invests primarily in firms likely to continue increasing their dividends at a double-digit-percentage rate but has added several technology-based companies to its holdings to enhance growth. Major holdings in the fund’s 40-50 stock portfolio include UnitedHealth Group (NYSE: UNH), Colgate-Palmolive Corp (NYSE: CL), and Coca Cola (NYSE: KO).
The dividend growth approach is important for bear markets, as historically the fund’s “value-tilted focus” on dividend growth tends to hold up relatively well when equity markets tremble. The fund lost meaningfully less than its index and most peers in the 2007-09 credit crisis, 2011’s turbulence, the 2015-16 correction and late-2018 drop, according to Morningstar. For investors who desire steady and predictable returns on their assets, investing in Vanguard’s dividend growth fund would be a low-cost way to achieve this goal.
3rd of 5th Best Vanguard Mutual Funds to Buy in 2022: LifeStrategy Moderate Growth Fund Investor Shares
The LifeStrategy Moderate Growth Fund Investor Shares (MUTF: VDIGX) is a fund that boasts an expense ratio of 0.16% compared to the category average of 0.75% along with no minimum initial investment. This access to invest in the fund makes it attractive to individual investors who want to invest less than the $3,000 minimum stated for the previously mentioned funds.
This fund is made up of 60% equity investments and 40% fixed income investments, encapsulating $20 billion total in assets. The equity investments tend to mirror the broader U.S. and global stock markets, as it holds the Vanguard Total Stock Market and Total Intl Stock Indexes. On the fixed- income end, this fund invests broadly in several Total Bond Market Funds and exclusively in Investment Grade-rated bonds. The balance of fixed income and equity helps this fund weather downturns as we have seen at the beginning of 2022. For investors who are risk averse to market conditions, this strategy is a good way to still capture the upside of investing in stocks.
4 of 5 Best Vanguard Mutual Funds to Buy in 2022: Inflation-Protected Securities Fund Investor Shares
Alongside its many equity-based mutual funds, Vanguard also has a large variety of indexed bond funds. The Investor Shares of the Inflation-Protected Securities Fund (MUTF: VIPSX) require a minimum $3,000 dollar investment and an expense ratio of 0.2% compared to the industry average of 0.4%.
Inflation has been a large issue in 2022 for consumers. Many have seen gas prices visibly rise; while this is also due to conflict affecting supply chains, it demonstrates the marked rise in inflation we have seen over the past year. Investors seeking to make predictable returns with bonds may feel that interest rates set on bonds currently will be outpaced by inflation, making bonds that are not inflation-protected securities less valuable. With inflation becoming an ever apparent issue throughout the past year, risk averse investors looking for safe, appreciating assets can achieve this through the Vanguard Inflation-Protected Securities Fund Investor Shares.
5th of 5 Best Vanguard Mutual Funds to Buy in 2022: Energy Fund Investor Shares
Energy Fund Investor Shares (MUTF: VGENX) has and will continue to play an enormous part in our lives. Major utility companies provide needed energy on an ever-increasing scale, and this fund seeks to match the overall utility index growth through its investments. Its investor shares require a $3,000 minimum initial investment, with an expense ratio of 0.33%, lower than the category average of 1.01%. This fund encompasses around $5.5 billion worth of assets.
Historically, utilities can be a risky investment, as stock prices have tended to swing heavily in accordance with world events. This fund compensates with lower risk, extremely large cap utility companies, and has recorded smaller investment swings than the index itself. While these swings may scare off more conservative investors, investors with longer time horizons have significant upside, as they weather the swings that market uncertainty imposes upon utility stocks. Some major companies this fund holds include ConocoPhillips (NYSE: COP), Marathon Petroleum Corp (NYSE: MPC) and Duke Energy Corp (NYSE: DUK), while focusing on North American utility companies.
How to Choose Which of the 5 Best Vanguard Mutual Funds to Buy in 2022?
Each of the preceding 5 Vanguard Mutual Funds, true to the Vanguard Index Based Mutual Fund status quo, offers low expense ratios that are far below average. They have high ratings for the quality of their managers and even more research available for individual investors through the funds’ prospectus. Choose a fund that best fits one’s personal investment approach, heed the appropriate expenses and tax obligations and use money to make more money.
Alex Liebetrauis an editorial intern who writes for www.stockinvestor.com and www.dividendinvestor.com.