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Whether you’re saving for retirement or stashing away money for a college education, Vanguard has options that match up with your goals. Passive investing in ETFs, mutual funds, and stocks is one of the best ways for everyday people to create a healthy financial future.
Vanguard is one of the biggest names in investing and is known for its low-cost mutual funds and ETFs, which is why NextAdvisor named it one of the best online brokerages for 2021. The company is good for investors who select the more passive approach to investing. Investors who want a more hands-on approach — or those who want to select their own individual investment types — might want to look elsewhere.
Read on to learn more about Vanguard.
Pros and Cons of Vanguard
With about $7.2 trillion in assets under management, Vanguard is in the top five investment management companies according to size. It’s well-known for its low- or no-fee products and wide array of mutual funds. A mutual fund helps diversify your investments and protects your money from volatility in the market.
Here are some ways the company stands out.
Different accounts for different needs. You have your choice of IRAs, education savings, trusts, and brokerage accounts.
Fee-free investing. You can invest in exchange-traded funds, mutual funds, options, and some stocks without paying for commissions.
No minimums for some accounts. You don’t need a set dollar amount to start investing in exchange-traded funds, stocks, or bonds, except for most mutual funds, which are $3,000 to get started.
Basic user interface. While great for new passive investors, active investors or those who want to learn more analytics might find the platform a little too simplistic.
Limited customer service. If you need to chat with someone about your account, you can only do it Monday through Friday, 8 a.m. to 8 p.m. An automated service runs for 24 hours a day, but that only gives you information on your account and market updates.
Vanguard at A Glance
- Offers both self-managed and robo-advisors, depending on what type of investor you are.
- You can choose the right account based on your needs, including individual and joint taxable accounts, traditional and Roth IRAs, SEP and SIMPLE IRAs, 529s, UGMAs, and trusts.
- Multiple investment types are available, including stocks, bonds, options, ETFs, mutual funds, and other services.
- Mostly fee-free, except some mutual funds and options have transaction fees.
Investments Available on Vanguard
If you decide to invest through Vanguard, you have your choice of thousands of:
- Mutual Funds
You can’t invest in fractional ETFs with Vanguard. Only full shares are available. Investing in fractional shares allows investors to determine how much they want to invest in a share by buying a piece of it without buying the whole share.
Vanguard has $0 commission fees and low expense ratios. An expense ratio is the fee an investor is charged for investing in that fund.
|Management fees||0.15% to 0.30%|
|Annual fee||$20 to $25, depending on the account, but can get waived in some instances.|
|Account minimum||$0 and up, depending on the account|
|Mutual fund fees (if applicable)||0% to 1%, depending on the fund and fee|
|Expense ratios||0.09% for ETFs|
|Account closing fees||$0|
Who Is Vanguard Best For?
Vanguard is best for new investors or those who don’t want to spend a lot of time managing investment accounts. While it’s a good idea to review your investment accounts at least once a year, you don’t have to spend a lot of time tinkering with your investments with Vanguard.
How to Open an Account with Vanguard
Head to the Vanguard investor page and click “open an account” to get started. If you already have an account somewhere else, you can select “start your transfer or rollover.” If you’d like to open a new account from scratch, select “start your new account.”
If you’re starting from scratch, you’ll follow the prompts on each page. Options to fund your account include through an electronic bank transfer or employer plan, or by transferring investments from another financial firm. If you’ve never used Vanguard before, you’ll need to create a login to continue.
If you’re rolling over an account, you can select what type of account you’re moving over. You can choose from:
- Checking or Savings
- 401(k), 403(b), or other employer plan
- Traditional IRA
- Roth IRA
- Inherited IRA
- Inherited Roth IRA
- Individual or Joint for general investing
- Rollover IRA
- UGMA/UTMA (for a minor)
- 529 education savings plans
Vanguard Compared to Others
Many of the leading investment platforms are competing for your business. Vanguard, TD Ameritrade and Charles Schwab all have no-transaction-fee mutual funds and commission-free ETFs. And for many products, these big-name asset managers don’t have an account minimum to get started, aside from the cost of a trade. But they do stand out in other ways:
- Charles Schwab has a 0.50% operating expense ratio. If you invest in other mutual funds aside from Schwab’s, you could get hit with a $49.95 charge per trade.
- Vanguard, Charles Schwab, and TD Ameritrade all charge $25 for each broker-assisted trade. But online trades won’t cost you anything.
- TD Ameritrade offers investment opportunities in futures and forex, while Vanguard doesn’t. If you want to diversify your portfolio with these higher-risk options, you might want to look elsewhere.
- Vanguard doesn’t have an account closing fee, but to transfer your full account out of TD Ameritrade, it’ll cost you $75. It’s $50 at Charles Schwab.
Frequently Asked Questions
Is it worth investing in Vanguard?
Because Vanguard offers such a broad selection of investment options, most investors can find a fund that suits their long-term goals and needs. It’s always worth asking a financial advisor — either through Vanguard Personal Advisor Services (its financial advisors), or with an independent service provider — whether your choices are best aligned with your financial needs.
How trustworthy is Vanguard?
Vanguard Personal Advisor Services are held to fiduciary standards under SEC and other applicable regulations. That means if you work with a Vanguard financial advisor to pick which funds you want to invest in, the advisors must make recommendations based primarily on your best interests.
Vanguard advisors don’t make commissions. Thanks to the company’s large size and mass of assets under management, it is able to cut down on commissions from sales and trades and make its profits through low management fees or annual account fees. This reduces the likelihood that an advisor would make a risky trade with your money in order to try and earn a profit.
In comparison, advisors who charge commissions only — such as a stockbroker — aren’t held to the same fiduciary standard and only have to recommend trades that are “suitable” to your needs (as opposed to trades in your “best interest”).
Is Vanguard a safe company to invest with?
Vanguard has been in business since 1975 and is a household name among most passive investors. While investing in the stock market comes with inherent risks, including the loss of money, it’s always important to understand what you’re investing in. Vanguard has a good reputation and is one of the top-five big investment managers.
Is Vanguard good for beginners?
Vanguard accounts are commonly used by beginners and passive investors who prefer a “set-it-and-forget-it” strategy. But all investors will find Vanguard’s low-cost ETFs and index funds appealing as they consider their long-term investment strategy.
Vanguard Review: A Clear Winner for Long-Term and Mutual Fund Investors
Vanguard was one of the last holdouts in the zero-commission revolution, but the company has scrapped its stock and ETF trading commissions for online trades.
Low cost ETFs and mutual funds
This is perhaps the biggest reason to use Vanguard as your broker. Vanguard's proprietary mutual funds and ETFs have some of the lowest expense rations. In addition to being able to buy and sell Vanguard's excellent family of mutual funds with no transaction fee, Vanguard offers thousands of other mutual funds on a no-transaction-fee (NTF) basis. Plus, its mutual fund commission of $20 for all other funds is on the lower end of the spectrum relative to peers. That's reduced to $8 or less for investors with at least $500,000 invested in Vanguard's mutual funds and ETFs.
No account minimums
Vanguard has no minimum deposit requirement to open a brokerage account. That said, the platform doesn't allow you to trade fractional shares of stock, so you'll need at least enough to cover one share of whatever stock or ETF you want. And if you plan on buying mutual funds, keep in mind that most have their own minimum initial investment requirements.
International market access
This is both a good and bad feature. Unlike many online brokers, Vanguard allows investors to buy stocks directly on foreign stock exchanges. However, doing so comes with a steep $50 commission.
Vanguard provides third-party stock research reports from Standard & Poor's, Thomson Reuters, and First Call. This can help beginners find good investment candidates and can also be a great tool to help learn the basics of stock analysis.
Lots of account types
Vanguard offers individual and joint brokerage accounts, traditional and Roth IRAs, SEP-IRAs, SIMPLE IRAs, solo 401(k)s, and 529 college savings plans.
Best Roth IRA accounts in October 2021
A Roth IRA offers many benefits to retirement savers, and one of the best places to get this tax-advantaged account is at an online brokerage or robo-advisor. Although a Roth IRA requires the account holder to pay taxes on the money going in, it allows any contributions and earnings to be withdrawn tax-free. This gives workers a chance to contribute to a tax-advantaged account, let the money grow tax-free and never pay taxes again on withdrawals in retirement.
That’s why many experts think the Roth IRA is the ideal retirement account.
Best Roth IRA accounts to open in October 2021:
How a Roth IRA works
A Roth IRA requires you to contribute after-tax savings to the account, rather than pre-tax savings, as with a traditional IRA. Then it allows you to withdraw qualified earnings tax-free at retirement. So you pay taxes today in exchange for keeping your savings and earnings tax-free in the future. That’s one of many ways that a Roth IRA beats a traditional IRA.
It’s best to think of a Roth IRA as a “wrapper” that can go around many types of accounts to protect them from the taxman. Many companies offer a Roth IRA, including banks, brokerages and robo-advisors, and each allows you to make various types of investments.
What you can earn in a Roth IRA all depends on what you’re invested in. At a bank you can invest in CDs, which are safe and insured by the FDIC so that you won’t lose principal (up to $250,000 per depositor, per bank).
At brokerages and robo-advisors, you can invest in assets such as stocks and bonds that can earn much more over time, but aren’t protected and can lose money. While a CD specifies what you’ll earn each year, these other investments can fluctuate, sometimes drastically.
Overview: Top Roth IRA accounts in October 2021:
If you’re looking to maximize your retirement savings, here are several of the best Roth IRA accounts to consider:
Charles Schwab does it all: great education and training for newer investors, high-caliber tools for active traders, responsive customer service and no trading commissions on stocks and ETFs. Schwab shines all around, and it remains an excellent choice for a Roth IRA.
Schwab charges nothing for stock and ETF trades, while options trades cost $0.65 per contract. And mutual fund investors can find something to love in the broker’s offering of more than 4,000 no-load, no-transaction-fee funds. With no account minimum, it’s even easier to get started.
In addition to a fully featured trading platform called StreetSmart Edge, the broker offers mobile trading as well as a more basic platform. More advanced investors should find the array of research — from Credit Suisse, Morningstar, Market Edge and more — helpful, too
Read Bankrate’s Charles Schwab review.
Wealthfront is one of the top independent robo-advisors, and it brings a lot to the table for investors looking for someone to do the investing work for them. Wealthfront picks your investments based on your risk tolerance and time until retirement. All you’ll need to do is add money to the account.
Wealthfront chooses from investments in 11 asset classes, giving you a wide assortment of funds and increasing its diversification, which can reduce your risk. Besides picking your investments, Wealthfront also brings some serious tools, including a robust financial planner that can help you track all your assets in one place.
The management fee for Wealthfront is a reasonable 0.25 percent, right in line with the industry standard. If you want to hold cash outside your IRA (or amass cash waiting to go into it), you can also quickly open a “do anything” cash management account – with a debit card, competitive interest rates and early access to your paycheck – at no additional cost or monthly fee.
Read Bankrate’s Wealthfront review.
If you’re looking to have someone else do the investing and portfolio management for you, Betterment is an excellent choice. Betterment is a robo-advisor that does all the heavy lifting — selecting the appropriate investments, diversifying the portfolio and allocating funds — so that you can focus on something else. And it does that at a reasonable cost, too.
Betterment is one of the oldest and largest robo-advisors, and the company offers two tiers of service: Digital and Premium. In either case, Betterment will craft your portfolio based on your risk tolerance, time horizon and goals so that your portfolio meets the needs of your financial life.
Betterment Digital manages your investments from a selection of about a dozen exchange-traded funds and charges just 0.25 percent of your assets annually. You’ll get automatic rebalancing, so that your portfolio stays in line with its target allocation, automated tax-loss harvesting (which applies only to taxable accounts) and access to financial advisors via in-app messaging.
If you want the Premium package, you’ll need at least $100,000 in your account and will pay 0.4 percent in fees, but you’ll receive unlimited access to a team of certified financial planners.
Read Bankrate’s Betterment review.
With its clean layout, helpful customer representatives, lack of commissions and all-around low fees, Fidelity is an excellent broker for beginning investors or those opening their first Roth IRA. Fidelity also features a well-developed educational section, which is great for customers who are new to the new investing game and want to get up to speed quickly.
Those investors opening their first Roth will appreciate how Fidelity makes it easy to invest, down to the little details like the layout of its web pages. It’s easy to place an order or find information.
Fidelity also takes a customer-first approach with its fees. The broker has slashed nearly all its fees, including pricey transfer fees. It also chopped fees on its mutual funds, becoming the first broker to bring the expense ratio of mutual funds to zero (for a handful of its own funds).
When you’re ready to advance, Fidelity can also provide research, offering reports from nearly 20 providers. You get all this for zero commission, too.
Read Bankrate’s Fidelity review.
Interactive Brokers does everything that traders and professionals need, and does it at high quality. It excels at global trading and reach, speedy execution and its advanced trading platforms. In short, Interactive Brokers is great for advanced traders.
Interactive Brokers might be best known for its $1 commissions on trades up to 200 shares, and the broker charges a half-cent per share for additional shares. If you’re rifling through shares as an active trader, though, you may appreciate the broker’s volume-based discounts. Options pricing has no base commission and a per-contract fee of 65 cents, making it highly competitive.
Interactive Brokers also does surprisingly well on mutual funds, offering more than 4,100 without a transaction fee, and you can also trade about 50 different ETFs commission-free. In addition, the company offers a “lite” version of its service, which charges no commissions on stocks or ETFs and has no account minimum, competing effectively against Schwab and Fidelity.
At Interactive Brokers, you can trade almost anything that trades on a public exchange: stocks, bonds, futures, metals and more. Plus, you can access virtually any world market to make a trade, so the investing world is really at your fingertips. Altogether, these attributes make Interactive Brokers the best for active traders.
Read Bankrate’s Interactive Brokers review.
Fundrise is a relatively new player on the scene, and it’s known for getting investors access to real estate. Real estate is a popular investment, and because it tends to pay cash dividends, it can be a smart investment inside a Roth IRA, where dividends are earned tax-free. Fundrise won’t be a good choice for all investors, but for those looking for this niche, it could be a snug fit.
Fundrise creates real estate investment trusts, or REITs, using investors’ money to buy real estate or mortgages. It also offers a more speculative set of funds that use investors’ money to develop residential real estate. These investments tend to offer sizable dividends and some opportunity for appreciation over time. Like many alternative investments, Fundrise’s offerings require you to lock in your money for years, though you may be able to get it out with a penalty.
Fundrise’s returns have been solid so far, earning an average of 10.1 percent annually since 2014, compared to the 10 percent average annual return of the Standard & Poor’s 500 Index over long periods. And it’s relatively easy to get started with an account minimum of $500.
Schwab Intelligent Portfolios
If you’re a fan of Schwab’s investor-friendly street cred but don’t want to invest your Roth IRA yourself, consider its robo-advisor: Schwab Intelligent Portfolios. This service will create a portfolio based on your financial needs, including when you want the money and how much risk you want to take.
One of the biggest positives of Schwab’s robo-advisor is its management cost: zero. That’s right, you won’t pay Schwab anything for managing your account, but you’ll still have to pay for the funds that you’re invested in, as you would anywhere. Schwab invests your money in its in-house funds, and these funds remain some of the market’s cheapest. So you’re putting the relatively low Roth annual maximum contribution into nearly full effect.
Schwab’s base service does not offer human advice, but you can upgrade to its premium tier and receive unlimited access to certified financial planners, if you need their help for those less-routine tasks. The cost for this upgrade is reasonable for what you’re getting: $30 a month, and a one-time $300 setup fee.
Perhaps the key downside for potential customers: Schwab requires a $5,000 minimum deposit to get started in the base service, though admittedly that’s less than one year’s maximum IRA contribution. If you want the premium tier, you’ll need $25,000 to get going.
Read Bankrate’s full review of Schwab Intelligent Portfolios.
Vanguard is great for investors who are looking to minimize costs, especially if they’re long-term buy-and-hold stock investors. Vanguard has long been known for its low-cost mutual funds and exchange-traded funds, and it’s expanded that reputation into its brokerage, too.
Vanguard was founded on the principle of helping investors take advantage of the stock market in a low-cost way. So not only does the broker offer zero commissions on stock and ETF trades, it also provides more than 3,400 mutual funds without a transaction fee.
The brokerage adds to its reputation with education and planning tools. Investors will find videos, podcasts and articles that provide market commentary and help them make sound investment decisions. You’ll find tools to help you plan for retirement as well as for college and other financial goals.
Read Bankrate’s Vanguard review.
Merrill Edge is the web-based broker from the storied and well-regarded Merrill, now owned by Bank of America. Merrill Edge is a great fit for those who already have an account at the bank. And for those who need customer service in person, it might be just what they need.
Merrill is a solid, full-service broker that does a lot right. It provides deep research from the broker’s large team of analysts, and it offers solid educational resources for new investors looking to get up to speed.
But where it really out-distances the competition is its ability to provide in-person assistance to clients. If you’re near one of more than 2,500 Bank of America locations offering the service, you can access customer support right at the bank. If you need a more personalized financial plan, Merrill’s team can also manage that.
Merrill is a great fit for current Bank of America customers, because your accounts are integrated on one platform, and you can access it all from the bank’s site.
Read Bankrate’s Merrill Edge review.
How much do you need to open a Roth IRA?
It doesn’t take a lot to get started with a Roth IRA. But every bank, brokerage and robo-advisor has its own requirements. However, it’s usually not difficult to find one that will allow you to open an account with no money.
While minimums aren’t a problem, one of the most important parts is not contributing too much. Investors need to be aware what the annual maximum contribution is and not go over it. For tax year 2021, you can contribute $6,000 to a Roth IRA (or $7,000 for those age 50 or older) as long as your income doesn’t exceed a certain amount. The maximum amount is tied to inflation and grows over time, so you’ll need to watch for changes.
One thing you won’t have to worry about, however, is having too many Roth IRA accounts. You’re allowed to have as many as you like, but you may not contribute more than the annual maximum. If you have three Roth accounts, you can divide that annual maximum among the accounts in any way you see fit.
The Roth IRA is a powerful retirement tool, and so it’s important that you pick the Roth IRA provider that’s going to give you the best results. Here are the best Roth IRAs to open.
5 Things to Know Before Rolling Over to a Vanguard IRA
Thanks to its vast array of ultra-low-cost index mutual funds and exchange-traded funds (ETFs), Vanguard has become one of the largest investment companies in the world. It's also popular for those who are looking to roll over retirement savings from a workplace 401(k) plan to an individual retirement account (IRA). Many investment companies have worked to keep the rollover process as simple as possible to attract assets, and Vanguard is no exception.
- You can roll over your 401(k) to Vanguard via its website or by phone.
- You’ll likely have to fill out paperwork from your employer, who in most cases will send a check directly to Vanguard.
- If the check is sent to you instead, be sure to send it to Vanguard within 60 days; otherwise, you’ll be subject to IRS penalties.
- Vanguard has a large lineup of index funds and ETFs to choose from, and it also offers funds from other providers in addition to stocks, bonds, and other investments.
To avoid delays in the rollover process, it's important to know what to expect and what information is required to complete the transaction. Here are five things to be aware of:
1. Paperwork Required
To get the rollover started, you need to contact both Vanguard and your employer. You can use Vanguard's website to initiate the rollover to an IRA. If you need assistance, you can also contact the company's customer service by phone for help.
First, you need to select what type of account you need for your IRA. You can choose to purchase Vanguard mutual funds and ETFs directly from the company, or you can open a brokerage account for access to funds from non-Vanguard providers, as well as individual stocks, bonds, and certificates of deposit (CDs). Include a recent copy of your quarterly 401(k) statement to verify your account information.
Many employers have their own rollover paperwork that you need to fill out to release the funds from your 401(k). You need to complete this and return it to your employer with the instructions that the rollover check be made out and sent directly to Vanguard.
Once you have completed all of your paperwork, the rollover typically takes around two or three weeks to complete.
2. Fees and Costs
Vanguard does not charge you any processing fees to complete your rollover. In most cases, your employer does not charge you any type of fee either.
When rolling over your 401(k) to an IRA don’t forget to name beneficiaries for the account.
Depending on how much money you are rolling over and which investments you choose, certain fees may apply. Vanguard charges a $20 annual account maintenance fee unless you meet specific minimum investment requirements or you enroll in electronic statement delivery.
Brokerage accounts may carry additional costs. Purchases of Vanguard index funds and ETFs come without any transaction costs, but buying shares of non-Vanguard mutual funds and products may come with fees. Additionally, purchases of individual stocks, bonds, or options contracts come with their own commission schedule, which depends on the overall balance of the account.
3. Available Investment Choices
One of the great benefits of rolling over your retirement dollars to an IRA is the vast wealth of choices it gives you. Whereas 401(k)s are generally limited to a handful of investment options, almost any type of security or investment is available in an IRA.
Amount of assets Vanguard manages globally, as of Jan. 31, 2021.
When you roll over your 401(k) to a Vanguard IRA, you have access to Vanguard's lineup of hundreds of index mutual funds and ETFs. If you are choosing a brokerage account for your IRA, you get access to the Vanguard family of funds as well as most other fund family products, in addition to individual stocks and bonds.
4. Indirect Rollovers
Some employers may choose to send the rollover directly to you instead of to Vanguard. This is known as an indirect rollover. If this happens, forward the check to Vanguard without delay. The money needs to arrive at Vanguard within 60 days so you can avoid any IRS penalties.
5. Rolling Over Roth Accounts
Many employers now offer the Roth 401(k) option within their retirement plans. If you are interested in rolling over a Roth 401(k) to Vanguard, the process is essentially identical. You would just be moving your money into a Roth IRA instead of a traditional IRA, with no additional costs involved.
The Bottom Line
Before you decide to roll over your 401(k) to a Vanguard IRA, it's important to understand what to expect, the fees and rules involved, and what information you'll need to provide—to your former employer and Vanguard—to complete the transaction.
Ira vangard roth
These are the best IRAs for all types of investors, from beginners to the more experienced
Many people use individual retirement accounts — more commonly known as IRAs — to save up money for their nonworking years.
Investing in an IRA is an effective way to make sure you're setting aside a retirement nest egg, especially if you don't already have a 401(k) plan offered by your employer.
IRAs also offer tax benefits, and they are set up to encourage you to leave your funds untouched by imposing early withdrawal penalty fees should you tap into your earnings before age 59 and a half.
To determine which IRAs are the best overall, Select reviewed and compared over 20 different accounts offered by national banks, investment firms, online brokers and robo-advisors. While there are several types of IRAs on the market, such as traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs, we chose to focus on only traditional IRAs for the purpose of this ranking.
To identify our top IRAs, we narrowed down the choices by selecting only those that require no minimum deposit, offer commission-free trading of stocks and ETFs, provide a variety of investment options and have educational resources or tools to help all sorts of investors.
We ranked the best IRAs by what type of investor you are, from beginner to experienced, as well as hands-on and hands-off investors. We included a best overall pick as well.
Below, Select's picks top five IRAs. (See our methodology for more information on how we choose the best traditional IRAs.)
Best individual retirement accounts
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One® Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit
Fees may vary depending on the investment vehicle selected. Schwab One® Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract
Robo-advisor:Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™IRA:Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA)Brokerage and trading: Schwab One® Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account
Stocks, bonds, mutual funds, CDs and ETFs
Extensive retirement planning tools
See our methodology, terms apply.
- $0 minimum deposit for active investing
- No commission fees for stock and ETF trades and no transaction fees for over 4,000 mutual funds
- Offers extensive retirement planning tools
- Users can get on-demand advice from a professional advisor/Schwab expert
- Robo-advisor Schwab Intelligent Portfolios® available as a no-fee automated service option (with Premium version available for a fee)
- Trading platform StreetSmart Edge® available for more active investors
- 24/7 customer support access by phone or chat
- Charles Schwab offers over 300 brick-and-mortar branches across the U.S. for in-person support
- Specific transactions may require commission fee
- Robo-advisor Schwab Intelligent Portfolios Premium charges a one-time planning fee of $300, then a $30 per month advisory fee. For that price, you get unlimited 1:1 guidance from a CFP, interactive planning tools, plus a personalized roadmap for reaching your goals
Best for beginner investors
Fidelity Investments IRA
$0 commission fees for stock and ETF trades; $0 transaction fees for over 3,400 mutual funds; $0.65 per options contract
500 free trades
Stocks, bonds, mutual funds, CDs and ETFs
Tools and calculators that show users their retirement goal progress; Fidelity Five Money Musts online game to teach you about managing money in the real world
See our methodology, terms apply.
- $0 minimum deposit
- No commission fees for stock and ETF trades and no transaction fees for over 3,400 mutual funds
- Abundant educational tools and resources
- Offers robo-advisor Fidelity Go (free for balances under $10,000)
- 24/7 customer service
- Offers over 100 brick-and-mortar branches across the U.S. for face-to-face support
- 0.50% annual fee to speak to a human advisor for accounts under $2 million
- Some of Fidelity's mutual funds require reaching specific thresholds, i.e. $10,000 (an increase from the previous $1,000 per trade monitoring threshold)
- Reports of platform outages during heavy trading days
- Robo-advisor fee is $3 per month for balances between $10,000 and $49,999; 0.35% for balances over $50,000
Best for experienced investors
$0, but you'll need $1,000 to invest in many of its retirement funds
$20 annual account service fee unless you sign up for electronic statements or meet minimum balance requirements; $0 commission fees for stock and ETF trades; $0 transaction fees for over 3,000 mutual funds
Stocks, bonds, mutual funds, CDs, ETFs and options
Retirement planning tools
See our methodology, terms apply.
- $0 minimum deposit
- No commission fees for stock and ETF trades and no transaction fees for over 3,000 mutual funds
- Large mutual fund selection
- Offers retirement planning tools
- Customers get access to GetHuman, a website dedicated to human-to-human customer service, with features that include talking to a Vanguard rep, notice of the current hold time, reminders to call when call center opens, as well as pro tips and talking points for customers
- $20 annual account service fee (unless you sign up for electronic statements or meet minimum balance requirements)
- Many retirement funds require $1,000 to invest
- Trading platform is not as robust as others
Best for hands-off investors
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For Betterment Digital Investing, $0 minimum balance; Premium Investing requires a $100,000 minimum balance
Fees may vary depending on the investment vehicle selected. For Betterment Digital Investing, 0.25% of your fund balance as an annual account fee; Premium Investing has a 0.40% annual fee
Up to one year of free management service with a qualifying deposit within 45 days of signup. Valid only for new individual investment accounts with Betterment LLC
Robo-advisor:Betterment Digital InvestingIRA:Betterment Traditional, Roth and SEP IRAs401(k):Betterment 401(k) for employers
Stocks, bonds, ETFs and cash
Betterment RetireGuide™ helps users plan for retirement
See our methodology, terms apply.
- $0 minimum deposit
- No trade or transfer fees
- Good for automated investing
- Customizes users' portfolios around their financial goals, timeline and risk tolerance
- Users can assign specific investing goals (short- and long-term) to each portfolio and invest using different strategies (less and more risk)
- Quick and easy to set up account
- Able to sync external retirement accounts to your Betterment retirement goal so all your accounts are in one place
- Premium plan users get unlimited access to a financial advisor (otherwise, one-time advisor consultations cost a fee ranging from $199 to $299)
- Advanced features include automatic rebalancing, tax-saving strategies and socially responsible investing
- Betterment RetireGuide™ helps users plan for retirement
- 0.25% annual account fee
- 0.40% annual account fee for upgraded premium plan
- Premium plan requires $100,000 minimum balance
Best for hands-on investors
No account fees; $0 commission fees for stock and ETF trades; $0 transaction fees for over 4,000 mutual funds
For a limited time only: Get up to $3,000 when you open and fund within 60 days of account opening a new E*TRADE brokerage or retirement account by June 30, 2021, using promo code: BONUS21 (deposit minimums start at $10,000)
Stocks, bonds, mutual funds, CDs, ETFs and options
Educational library includes in-depth articles and videos
See our methodology, terms apply.
- $0 minimum deposit
- No commission fees for stock and ETF trades and no transaction fees for over 4,000 mutual funds
- Offers automated investing through Core Portfolios platform (minimum $500 to open account)
- Active traders receive volume discounts on options
- Strong mobile platform
- Website is not as user-friendly as others
- Robo-advisor option Core Portfolios costs minimum $500 to open account
What is an IRA?
IRAs are tax-advantaged investment accounts. They offer a range of investments for your money, such as individual stocks, bonds, mutual funds, CDs and cash.
You can open an IRA at most banks and credit unions, as well as through online brokers and investment companies.
If you already make automatic contributions into a 401(k) account through your employer, you may wonder if you also need an IRA. IRAs supplement these other retirement accounts and come with their own advantages. They are accessible and easy to set up, plus individuals can shop around for the right investments for their finances versus being limited to their employer's 401(k) plan. This gives you the flexibility to make your own investment selections, with the guidance of the brokerage firm or bank that manages your account.
You can also set up automatic contributions into your IRA from your checking or savings account. IRAs typically don't come with account setup fees, but you'll likely have to pay transaction and advisory fees when applicable, as well as fund expense ratio fees which cover operational costs.
Before funding an IRA, you need to understand the contribution limits and tax implications. How much you can contribute and deduct from your taxes depends on your age, income, tax filing status and whether or not you have a retirement plan through your employer.
Below are two handy resources from the IRS website that help guide you through how much you can contribute to an IRA and how much of it can be tax-deductible:
- IRA Contribution Limits: There is a maximum dollar amount you can contribute to your IRA each year, and it's determined by the federal government. In 2021, the limit is $6,000 if you're younger than 50 and $7,000 for those 50 and older.
- IRA Deduction Limits: There are also limits on how much of your IRA contribution you can deduct from your individual federal income tax return. This only applies to traditional IRAs as Roth IRA contributions are not tax-deductible. You cannot make a deduction if you (or your spouse, if married) have a retirement plan at work and your income is $76,000 or more as a single filer/head of household, $125,000 or more as married filing jointly/qualifying widow(er) or $10,000 or more as married filing separately. If you (and your spouse, if married) do not have a retirement plan at work, you can make a full deduction up to the amount of your contribution limit.
How do I choose an IRA?
Though there are several different types of IRAs, you may not be eligible for all of them. Individual taxpayers can choose from traditional and Roth IRAs, while anyone who is self-employed (think freelancers) or a small business owner can choose from SEP (Simplified Employee Pension) and SIMPLE (Savings Incentive Match Plan for Employees) IRAs.
When choosing an IRA to start saving for retirement, you'll most likely be deciding between a traditional or Roth IRA. Key factors to think about are your financial goals, timeline to retirement and risk tolerance. If you're closer to retirement, you'll probably want to go with investments that are lower risk and have less potential to lose money as you near your nonworking years. The advantage of choosing an IRA from a well-known brokerage firm or bank is that they help you assess what would be the best investments depending on your other goals, how soon you want to retire and how conservative you want to be.
For the more active investors, look at IRAs offered by online brokers like E*TRADE. For the more passive investors, consider an IRA from a robo-advisor, such as those from Betterment. Robo-advisors rely on algorithms to manage your portfolio for you, taking into consideration your risk tolerance and goals.
For a more personal experience, consider IRAs offered by big brokerage firms like Charles Schwab, Fidelity Investments and Vanguard that provide access to human advisors.
Traditional vs Roth IRA?
The big difference between traditional and Roth IRAs is when you pay taxes.
With a traditional IRA, you contribute pre-tax dollars. While this is better for your immediate cash flow as you're taking out less from your disposable income now, your money grows tax-deferred and later in retirement you will have to pay income tax on any funds you choose to withdraw. This is a good option if you think you will be in the same or a lower tax bracket (have the same or less income) when you retire. If you withdraw either your pre-tax contributions or earnings from your traditional IRA before age 59 and a half, you'll be taxed in addition to incurring a 10% early withdrawal penalty fee.
With a Roth IRA, you pay taxes upfront by contributing after-tax dollars. While this is a bigger hit to your immediate cash flow since you are taking out more from your disposable income now, your money grows tax-free and so in retirement, withdrawals are generally not taxed as long as your account has been open for at least five years. This is a good option if you think you will be in a higher tax bracket (have more income) when you retire.
You can withdraw your after-tax contributions from your Roth IRA at any age tax- and penalty-free. If you withdraw any earnings you've made on your investments before age 59 and a half, you will incur a 10% early withdrawal penalty (though it won't be taxed like a traditional IRA). Some exceptions to this early withdrawal penalty on Roth IRAs include first-time home purchases, college expenses and birth or adoption expenses.
You can use calculators like this one from Charles Schwab to help you decide between choosing a traditional or Roth IRA.
How much should I contribute to my IRA?
There are strict contribution limits, so you can only deposit a certain amount of money into your IRA each year.
Both traditional and Roth IRAs have the same contribution limits: For 2021, those under age 50 can make a total contribution into their traditional and Roth IRAs of up to $6,000. Those 50 or older have a limit of $7,000.
With traditional IRAs, you can contribute regardless of how much money you earn, but with Roth IRAs there are income limits. High-earners may not be eligible to open or contribute to a Roth IRA. Here are the 2021 income thresholds for contributing to a Roth IRA:
- Married filing jointly or qualifying widow(er): Not eligible if your modified adjusted gross income is $208,000 or more
- Single, head of household or married filing separately (and you didn't live with your spouse at any time during the year): Not eligible if your modified adjusted gross income is $140,000 or more
- Married filing separately (if you lived with your spouse at any time during the year): Not eligible if your modified adjusted gross income is $10,000 or more
Can I lose money in an IRA?
In short, yes. Retirement accounts like IRAs invest your money in stocks and bonds, so your money fluctuates with the highs and lows of the market. You can also lose money if you take out cash before retirement and pay early-withdrawal penalties.
The good news is that retirement funds are long-term investments so market dips in the short term shouldn't affect you too much in the long haul. And while early-withdrawal penalties seem like punishment, they are there to encourage you not to withdraw from these accounts.
To determine which individual retirement accounts (IRAs) are the best for investors, Select analyzed and compared traditional IRAs offered by national banks, investment firms, online brokers and robo-advisors. We narrowed down our ranking by only considering those that offer commission-free trading of stocks and ETFs, as well as a variety of investment options so you can best maximize your retirement savings.
We also compared each IRA on the following features:
- $0 minimum deposit: All of the IRA on our ranking don't have minimum deposit requirements.
- Low fees: We considered each IRA's fees, commission trading fees and transaction fees.
- Bonus offered: Some IRA offer promotions for new account users.
- Variety of investment options: The more diversified your portfolio, the better. We made sure our top picks offer investments in stocks, bonds, mutual finds, CDs and ETFs. Most also offer options trading.
- A hub of educational resources: We opted for IRA with an online resource hub or advice center to help you educate yourself about retirement accounts and investing.
- Ease-of-use: Whether accessing your IRA via your laptop at home or on your smartphone while on the go, it's important to have an easy user experience. We noted when investment platform excelled in usability.
- Customer support: Every IRA on our list provides customer service available via telephone, email or secure online messaging.
After reviewing the above features, we sorted our recommendations by what type of investor is a best fit, from beginners and hands-off investors, to the more experienced and hands-on investors.
Your earnings in an IRA depend on any associated fees, the contributions you make to your account and the fluctuations of the market.
Best Places to Open an IRA
Best for Values Based Investing
With the recent announcement that Swell Investing is shutting down, Motif Investing is a strong option for those interested in values based investing. A common critique of Socially Responsible Investing (SRI) or Environmental, Social, and Governance (ESG) investing is that people define those terms differently, and what’s “socially responsible” to one person may not be to another. Motif has a much wider variety of options in this space, giving each individual more flexibility in building their own values aligned investments.
Each “motif” is a basket of up to 30 stocks or ETF’s built around a specific theme. You can buy a motif of all “Fossil Free” companies, or you could use the motif for “Modern Warfare”, which is made up of weapons, defense, and surveillance companies. You can even invest in a “Junk Food” motif, made up entirely of companies that expand your waistline.
MOTIF is not for an investing novice, and has many options that could be confusing if you’re not already experienced with investing. The cost to use any of their Thematic Portfolios (referenced above) is 0.50% of assets a year–higher than for some other “robo” advisors. The cost for Mortif’s “Impact Portfolios” is 0.25% of assets, and provides options more similar to what we may traditionally think of as impact investing. You can start investing with as little as $300.
Trading fees vary by account type and investment type, and can be on the higher end of trading costs. While there are low or no costs for trading at the “Next Market Open”, there are costs ranging from $4.95-$19.95 for real-time trades. The costs vary based on portfolio type. This makes Motif much more expensive than robo advisors like Betterment or others, which have a “wrap fee”, meaning the percentage charged for assets under management includes all trading costs.
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15 Best Vanguard Mutual Funds for Investors of All Stripes
When it comes to Vanguard mutual funds, you might think the universe of offerings is so large that it's impossible to pick the right options. We wouldn't blame you: Vanguard is one of the world's leading asset managers, with a staggering $7 trillion under management.
However, the truth is that Vanguard's mutual funds have risen to such dominance not because they are overly complex or numerous. The investment giant actually only offers about 130 or so mutual funds – many of which have been around and followed the same plan for decades.
That's the appeal of Vanguard: a tried-and-true approach to cost-effective, hands-off investing. You'll find super cheap index funds that are typical from Vanguard on this list of top mutual funds, but you'll also find actively managed options for investors who simply need help making sense of the markets.
Here are 15 of the best Vanguard mutual funds that span a variety of investing strategies. No matter what type of investor you are, you should be able to find at least a couple useful, low-cost options that align with your goals.
Data is as of July 22. Fund yields represent the trailing 12-month yield, which is a standard measure for equity funds, unless otherwise noted. Minimum initial investment for all funds listed here is $3,000.
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Vanguard 500 Index Fund Admiral Shares
- Fund category: Large blend
- Assets under management: $241.2 billion
- Yield: 1.3%
- Expense ratio: 0.04%, or $4 annually for every $10,000 invested
Vanguard 500 Index Fund Admiral Shares (VFIAX, $403.40) became Wall Street's very first index fund in 1975 at the behest of Vanguard founder Jack Bogle. Today, it remains one of the most popular ways to gain diversified exposure to the U.S. equity market in a single holding.
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This Vanguard mutual fund is deceptively simple, offering investors exposure to 500 mostly U.S.-based large- and mid-cap companies, which currently includes popular stocks such as Apple (AAPL), Microsoft (MSFT) and Nvidia (NVDA). In fact, because many of the largest companies on the planet are tech giants like these, information technology makes up about 27% of the entire fund.
Generally, Vanguard 500 Index is seen as a diversified and cost-effective core holding for almost any investor type that wants exposure to publicly traded U.S. companies. That makes it one of the best Vanguard mutual funds for just about any style of investor.
Note: VFIAX also trades as an ETF, the Vanguard S&P 500 ETF (VOO).
Learn more about VFIAX at the Vanguard provider site.
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Vanguard Total Stock Market Index Fund Admiral Shares
- Fund category: Large blend
- Assets under management: $257.6 billion
- Yield: 1.3%
- Expense ratio: 0.04%
Looking beyond just the biggest stocks on Wall Street, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX, $109.58) allows investors to take exposure to some 3,800 total positions. As the name implies, this accounts for almost the entire domestic stock market.
However, because VTSAX is weighted by size, it's still heavily invested in big tech stocks, with the sector accounting for the same share (27%) as VFIAX thanks largely to the same group of trillion-dollar Silicon Valley giants. Furthermore, the top 10 positions overall make up 22% of the entire portfolio despite the fact that thousands of other companies have fractional stakes in the makeup of this Vanguard mutual fund.
That results in a portfolio with a 70-17-6 large-mid-small blend for VTSAX, versus 85-15-0 for VFIAX – so, mildly more diversified by size, but still beholden to large-cap stocks. But that's enough of a difference for many investors to prefer Vanguard Total Stock Market Index over Vanguard 500.
Note: VTSAX also trades as an ETF, the Vanguard Total Stock Market ETF (VTI).
Learn more about VTSAX at the Vanguard provider site.
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Vanguard Total International Stock Index Fund Admiral Shares
- Fund category: Foreign large blend
- Assets under management: $48.6 billion
- Yield: 2.4%
- Expense ratio: 0.11%
Looking beyond U.S. stocks, the Vanguard Total International Stock Index Fund Admiral Shares (VTIAX, $34.88) allows investors to supplement their core holding of U.S. stocks with international stocks – without overlapping positions. That's because VTIAX is ex-U.S., meaning it excludes all domestic stocks from the list of some 7,500 total holdings.
Right now, the region that dominates Vanguard Total International Stock Index is Europe, with about 40% of total assets in stocks such as Swiss foods giant Nestle SA (NSRGY) and French fashion and consumer goods giant LVMH Moet Hennessy Louis Vuitton (LVMUY). However, emerging markets are still well represented with more than 25% of assets tied up in regions including China, India and Brazil.
If you want to stick with the best Vanguard mutual funds as you supplement your core domestic holdings, VTIAX is a cheap and simple way to do so.
Note: VTIAX also trades as an ETF, the Vanguard Total International Stock ETF (VXUS).
Learn more about VTIAX at the Vanguard provider site.
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Vanguard International Explorer Fund
- Fund category: Foreign small/mid growth
- Assets under management: $2.8 billion
- Yield: 1.0%
- Expense ratio: 0.39%
Of course, a huge list of multinational stocks might not ultimately give you more diversification. Nestle is, after all, just as dependent on U.S. consumer tastes as many other domestic food companies. So, why not layer a more qualitative approach to your international investments instead of just picking big overseas stocks?
That's what Vanguard International Explorer Fund (VINEX, $22.46) does. The actively managed portfolio of roughly 530 foreign companies takes a more strategic tack than simply investing in big multinationals with recognizable names. For instance, top holdings include Dutch semiconductor company ASM International NV (ASMIY) and Japanese pharmaceutical firm Nippon Shinyaku – two firms that most U.S. investors probably haven't heard of, but that have nonetheless greatly outperformed the S&P 500 so far in 2021.
Furthermore, many of Vanguard International Explorer's holdings aren't easily accessed by the typical domestic investor. That's the real value of VINEX over the typical ex-U.S. index fund that focuses on high-profile multinationals.
If you're looking for true overseas growth potential, VINEX is likely one of the best Vanguard mutual funds for you.
Learn more about VINEX at the Vanguard provider site.
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Vanguard Dividend Growth Fund
- Fund category: Large blend
- Assets under management: $51.2 billion
- Yield: 1.5%
- Expense ratio: 0.26%
The Vanguard Dividend Growth Fund (VDIGX, $37.40) emphasizes stability and income growth in a simple and cost-effective way.
How simple? Just more than 40 stocks make up this fund right now, with companies including healthcare giant Johnson & Johnson (JNJ), fast food icon McDonald's (MCD) and insurer UnitedHealth Group (UNH) near the top of the list.
Manager Donald Kilbride's mission is to target high-quality, typically large-cap companies that demonstrate the potential for (and typically the existing practice of) raising dividends. But sheer yield isn't the point – hence the 1.5% current yield, while modestly better than the S&P 500's 1.3% yield, is hardly a game-changing amount of income.
It's worth noting that while these entrenched stocks are more stable than the typical growth-oriented tech company that doesn't pay a dividend, this stability can result in investors leaving profits on the table when things are going well for Wall Street. Case in point: Even accounting for dividends, VDIGX has underperformed the S&P so far in 2021.
But if stability and income growth are important to you, VDIGX is one of the best Vanguard mutual funds you can buy. Morningstar notes that the fund offers extremely low risk compared to its peers in the large blend category.
Learn more about VDIGX at the Vanguard provider site.
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Vanguard Selected Value Fund
- Fund category: Mid-cap value
- Assets under management: $6.7 billion
- Yield: 1.1%
- Expense ratio: 0.31%
Value investing involves looking for companies that have inherent value in their operations and aren't as reliant on future growth plans or the whims of Wall Street.
The Vanguard Selected Value Fund (VASVX, $30.26) is a respected option for those interested in this strategy. VASVX comprises about 120 stocks, primarily (93%) in the U.S., and commands a little less than $7 billion in assets under management.
Unlike some of the bigger and more passive index funds out there, actively managed Vanguard Selected Value's targeted approach and a focus on mainly mid-sized companies allows it to chase "deep value" investments instead of just the typical list of large cap consumer staples stocks you normally might see.
Case in point: Top holdings right now include Dublin-based airport lease company AerCap Holdings (AER), Canadian apparel company Gildan Activewear (GIL) and midsize American enterprise computing firm Arrow Electronics (ARW).
If you're stuck in the same old blue chips, this is one of the best Vanguard mutual funds for a breath of fresh air.
Learn more about VASVX from the Vanguard provider site.
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Vanguard Explorer Fund
- Fund category: Small growth
- Assets under management: $24.3 billion
- Yield: 0.1%
- Expense ratio: 0.41%
The flip side of value, of course, is growth. And the Vanguard Explorer Fund (VEXPX, $143.96) represents one of the best Vanguard mutual funds for those wanting to look beyond large-cap stocks to find growth opportunities off the beaten path.
The portfolio at present boasts 750 or so total positions, but a median market capitalization of just $6.4 billion. That could be appealing to investors who are skeptical that mature trillion-dollar companies can continue to outperform and grow at significant rates forever.
VEXPX's managers have heavily concentrated more than two-thirds of assets into just three sectors: Information technology (23%), healthcare (22%) and industrials (20%). Top holdings at present include Irish medical diagnostics company Icon (ICLR), apparel retailer Burlington Stores (BURL) and Silicon Valley cloud software firm Five9 (FIVN).
Smaller companies carry more risk, naturally, but they also theoretically possess much more potential over the long term. VEXPX is an inexpensive way to harness this potential.
Note: VEXPX also trades as Admiral class shares (VEXRX).
Learn more about VEXPX at the Vanguard provider site.
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Vanguard Global Minimum Volatility Fund Investor Shares
- Fund category: World small/mid stock
- Assets under management: $2.8 billion
- Yield: 1.9%
- Expense ratio: 0.21%
After the volatility of 2020, many investors started looking around for funds with a lower risk profile that would help preserve their nest egg in tough times. That's where the Vanguard Global Minimum Volatility Fund Investor Shares (VMVFX, $14.84) comes in, delivering a strategy that is designed to smooth out the bumps in the road for your portfolio.
To be clear, no investment is 100% risk free. But the actively managed fund specializes in both U.S. and foreign stocks that tend to "wiggle" less than their peers, which means VMVFX is more likely to hang tough when things go awry for Wall Street.
Perhaps unsurprisingly, the list of about 300 stocks is biased a bit toward healthcare (16%), technology (15%) and consumer staples (14%). Big tech mainstays such as Microsoft are among the top holdings, as this enterprise giant is too entrenched to go anywhere anytime soon, as are leading U.S. healthcare giants including J&J and Amgen (AMGN) that can rely on medical "customers" regardless of the broader economic environment.
A word of warning, however: While short-term disruptions are painful, the long-term trend of the stock market as a whole has always been higher. In fact, Vanguard warns in its official documentation that "we caution against expecting any low or minimum volatility investment to outperform, or even match, the global equity market over the long term."
In other words, VMVFX isn't an ideal path for growth. But it is one of the best Vanguard mutual funds for investors in need of a shorter-term insurance policy.
Note: VMVFX also trades as Admiral class shares (VMNVX).
Learn more about VMVFX at the Vanguard provider site.
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Vanguard FTSE Social Index Fund Admiral Shares
- Fund category: Large growth (ESG)
- Assets under management: $13.8 billion
- Yield: 1.0%
- Expense ratio: 0.14%
While recent events on Wall Street may have many thinking about volatility, recent events on Main Street also have many investors thinking hard about social responsibility in their portfolio – and how they can have confidence that they're backing companies that align with their personal values.
The Vanguard FTSE Social Index Fund Admiral Shares (VFTAX, $42.78) is one answer to this question. This fund is benchmarked to the FTSE4Good US Select Index, a market cap-weighted index composed of just under 500 large- and mid-capitalization stocks that are screened for environmental, social, and corporate governance criteria – known by the acronym of ESG by most investors.
To be clear, this is an "exclusionary" index, meaning it simply kicks out stocks that do not meet minimum human rights standards or that engage in gambling or fossil fuel production. So in many ways, the list is quite similar to your typical large-cap index fund, with search giant Alphabet (GOOGL), EV maker Tesla (TSLA) and big bank JPMorgan Chase (JPM) near the head of the class.
Still, if you're looking for a simple and cost-effective way to cut out Big Oil or firearms manufacturers, VFTAX could be a good fit.
Learn more about VFTAX at the Vanguard provider site.
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Vanguard Total Bond Market Index Fund Admiral Shares
- Fund category: Intermediate-term core bond
- Assets under management: $80.0 billion
- SEC yield: 1.3%*
- Expense ratio: 0.05%
So far there have been a lot of Vanguard mutual funds on this list to play the stock market in various ways. However, bonds remain an important part of any well-rounded and long-term portfolio, both to provide reliable income as well as a way to smooth out volatility and reduce your risk profile.
The Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX, $11.42) is one of the best Vanguard mutual funds for fixed-income investors. It's a massive, simple and inexpensive way to gain broad exposure to U.S. "investment-grade" bonds.
Primarily, the fund invests in U.S. Treasuries and mortgage-backed securities (MBSes) of all maturities, from bonds due in just a few years to long-term issues that won't mature for a few decades. About two-thirds of the fund is in these government-backed bonds, while the rest is in top-tier corporations including issuers such as Bank of America (BAC).
Unfortunately, with interest rates steadily sliding lower over the last several years, Vanguard Total Bond Market Index yields a mere 1.3%. However, that's about the same as the S&P 500 – and considering the U.S. Treasury and high-quality corporate bonds are a lot more stable than your average stock, that payday comes with a significantly lower risk profile.
Just be aware that, as with other bond funds out there, increases in interest rates might cause the price of the bonds in the portfolio to decrease in face value. So if rates start to rise, VBTLX could experience some short-term pain.
Note: VBTLX also trades as an ETF, the Vanguard Total Bond Market (BND).
* SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.
Learn more about VBTLX at the Vanguard provider site.
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Vanguard Short-Term Treasury Fund Investor Shares
- Fund category: Short-term government bond
- Assets under management: $7.9 billion
- SEC yield: 0.0%
- Expense ratio: 0.20%
If stability and safety are your primary goals, the Vanguard Short-Term Treasury Fund Investor Shares (VFISX, $10.71) is an alternative to VBLTX's whole universe of investment-grade bonds, instead focusing solely on short-term Treasury bonds.
This reduces your risk profile significantly in two important ways. For starters, you're not taking on any corporate debt and instead rely wholly on the U.S. government as the borrower of choice. If Uncle Sam goes bankrupt, we all have much bigger problems than our 401(k), after all.
Secondly, it's important to understand that the "duration" of these loans to the government are only just a few years; right now, the average duration of bonds held by VFISX is just 1.9 years, which effectively means a 1-percentage-point increase in rates should cause VFISX to decline by just 1.9%.
The farther out in time you go the harder it is to predict things, but even if you believed Washington was going to be doomed eventually, a mere two years isn't a lot of time for the entire Treasury Department to fall apart.
The big tradeoff for this level of certainty is the small premium investors get paid on these loans to the federal government. Specifically, the yield on VFISX right now is a measly 2 basis points (0.02%). Even in times of meager inflation, that return on your investment capital likely won't maintain its purchasing power over the next few years.
That's why many investors use this kind of fund as a short-term holding place for cash until they're ready to redeploy it.
Note: VFISX also trades as Admiral class shares (VFIRX).
Learn more about VFISX at the Vanguard provider site.
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Vanguard Inflation-Protected Securities Fund Investor Shares
- Fund category: Inflation-protected bond
- Assets under management: $37.0 billion
- SEC yield: -1.7%
- Expense ratio: 0.20%
Speaking of inflation, the actively managed Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX, $14.69) offers an interesting investment or hedge for those that are worried about rising prices over the long-term. This fund is designed to protect your portfolio through a focus on Treasury Inflation Protected Securities, or TIPS.
This special class of bonds is not only backed by the full faith and credit of the federal government, but it's also indexed to inflation. In other words, should runaway inflation hit, you will see the value of VIPSX increase in kind to protect you.
This might sound so good, you wonder why any investor would ever go after conventional bonds in an inflationary environment. However, it's important to note that the potential gain in principal value you'll enjoy is offset – or depending on market conditions, sometimes more than offset – by a reduction in yield. Consider that the specter of inflation has caused the yield on recently issued TIPS to actually turn negative, with VIPSX yielding -1.7% at present.
This is a real risk in TIPS, which saw negative yields for the first time in 2010 after fears of inflation in the wake of the global financial crisis and related government bailouts. It's also worth noting that despite these fears, inflation ran at a roughly 1.6% annualized rate in 2010 – hardly enough to justify those negative yields.
But if you're really concerned about inflation, VIPSX is one of the best Vanguard mutual funds you can buy.
Note: VIPSX also trades as Admiral class shares (V).
Learn more about VIPSX at the Vanguard provider site.
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Vanguard High-Yield Corporate Fund Investor Shares
- Fund category: High-yield bond
- Assets under management: $29.6 billion
- SEC yield: 2.8%
- Expense ratio: 0.23%
If you're interested in income from the bond market, then the Vanguard High-Yield Corporate Fund Investor Shares (VWEHX, $6.00) is worth a look. This actively managed fund is well established, with about $30 billion in total assets under management, and ranks as one of Kiplinger's 25 favorite mutual funds.
VWEHX seeks a higher level of income than is normally provided by more credit-worthy borrowers in the bond market by investing primarily in corporate securities from slightly tarnished firms. Among the positions in the fund right now are bonds from printing producer Xerox (XRX) and casino operator Caesars Entertainment (CZR). Obviously, there's more risk in lending to companies like this than mega-cap mainstays, but there's also a better rate of return on that investment if these companies continue to make good on their debt payments.
How much better is that rate of return? The current SEC yield of 2.8% is more than double the yield on the S&P 500, and considerably better than most large-cap dividend funds and investment-grade bond funds.
Also, with more than 600 different bonds to build in some diversification, chances are that even if a few of these investments go south, Vanguard High-Yield Corporate will remain a solid performer in the long term.
Note: VWEHX also trades as Admiral class shares (VWEAX).
Learn more about VWEHX at the Vanguard provider site.
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Vanguard Wellington Fund Investor Shares
- Fund category: Allocation (50%-70% equity)
- Assets under management: $120.3 billion
- Yield: 1.7%
- Expense ratio: 0.24%
The nearly century-old Vanguard Wellington Fund Investor Shares (VWELX, $49.03) isn't just one of the best Vanguard mutual funds on offer. It's also the oldest, and it also claims to be the nation's oldest "balanced" fund, looking to allocate investors into a mix of stocks and bonds for a more diversified approach than sticking to just one asset class.
Founded in 1929, this Kiplinger 25 selection aims to keep about two-thirds of the portfolio in stocks and the other third in bonds for broad diversification. Though bonds are the "smaller" part of the portfolio, VWELX still holds nearly 1,100 different debt issues, giving this fund a very diversified view of this asset class.
Conversely, while stocks represent two-thirds of the total portfolio, Wellington's managers only have 60 total positions at the moment. That said, the mix of industries is still decent; technology is the largest sector by weighting (20%), but five other sectors rank around 10% or more for a broad look at the equities market.
All this balance comes at a very low cost, with a fee structure that is quite affordable when compared with other diversified asset allocation funds.
Editor's note: VWELX and the Admiral class VWENX shares are currently closed to new investors unless they purchase directly through a Vanguard brokerage account.
Learn more about VWELX at the Vanguard provider site.
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Vanguard LifeStrategy Growth Fund
- Fund category: $20.8 billion
- Assets under management: $20 billion
- Yield: 1.6%
- Expense ratio: 0.14%
Rounding out this list of the top Vanguard mutual funds is one of its premier "funds of funds" – the Vanguard LifeStrategy Growth Fund (VASGX, $44.11), which is an amalgamation of other offerings, including some of the picks already mentioned on this list.
The idea is pretty simple: If you're an investor who wants to cover multiple asset classes and take a holistic approach to your portfolio instead of picking and choosing individual positions, VASGX will balance things out for you.
Right now, VASGX's five holdings include domestic equity fund Vanguard Total Stock Market at 49% of the fund, foreign stock fund Vanguard Total International (32%), Vanguard Total Bond Market II (VTBIX, 14%) to represent investment grade U.S. bonds, and then Vanguard Total International Bond Fund (VTABX) and Vanguard Total International Bond II Index Fund (VTIIX) providing overseas fixed-income exposure to round out the fund.
You have all your bases covered in one fund here. This is all many investors need to approach their portfolio in a single position. However, be aware that if you don't like this mix, you don't really have much say in customization of the fund.
Learn more about VASGX at the Vanguard provider site.