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7 Vanguard Funds for Conservative Investors

Todd Shriber

One of the great things about Vanguard , aside from the low costs, is that when the issuer’s index, mutual, and exchange traded fund (ETF) lineups are added, there are plenty of choices for wide varieties of investors, including those on the more risk-averse side of the ledger.

Of course, costs, as in low costs, are one of the biggest reasons why Vanguard is a behemoth in the index fund universe and the second-largest U.S. ETF issuer. The company makes clear that it is on the investor’s side when it comes to fees. The less investors lose to fees, the more they earn over long holding periods.

“Imagine you have $100,000 invested. If the account earned 6% a year for the next 25 years and had no costs or fees, you’d end up with about $430,000,” said Vanguard . “If, on the other hand, you paid 2% a year in costs, after 25 years you’d only have about $260,000. That’s right: The 2% you paid every year would wipe out almost 40% of your final account value. 2% doesn’t sound so small anymore, does it?”

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For conservative investors, the good news is that there are plenty of Vanguard funds that meet their criteria. Those offerings generally come with below-average fees. With that in mind, here are some of the best Vanguard funds for conservative investors to nibble at.


Vanguard Dividend Growth Fund (VDIGX)

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Expense ratio: 0.22% per year, or $22 on a $10,000 investment.

Conservative investors often embrace dividend strategies. The recently-reopened Vanguard Dividend Growth Fund (MUTF: VDIGX ) is an excellent avenue with which to express that view. This Vanguard fund’s costs are decent, but more importantly, it’s a no-load mutual fund with a track record of nearly three decades and a manager that has been in place for 13 years.

There a few reasons why VDIGX is a compelling bet among Vanguard funds. First, the yield on 10-year Treasuries recently slipped below the dividend yield on the S&P 500 , indicating investors continue to lack adequate compensation with government debt. Second, the market is clearly favoring defensive strategies, including steady dividend payers .

Finally, some market observers believe swaps markets are not pricing in the right level of S&P 500 dividend growth for 2020. That growth is likely to come in better than currently expected, which could be a nice jolt for this Vanguard, assuming broader markets perform well in 2020.


Vanguard Tax-Exempt Bond ETF (VTEB)

Vanguard Tax-Exempt Bond ETF (VTEB)

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Expense ratio: 0.08%

For conservative investors, it doesn’t get much better than municipal bonds and the Vanguard Tax-Exempt Bond ETF (NYSEARCA: VTEB ). It’s Vanguard’s initial foray into the world of municipal bond ETFs. It has been a successful one at that as highlighted by VTEB’s $5.8 billion in assets under management. This Vanguard fund, which tracks the S&P National AMT-Free Municipal Bond Index, holds 4,202 muni bonds, a massive number relative to competing strategies .

Yield usually isn’t the name of the game with investment-grade munis, but this Vanguard fund’s 2.30% yield is better than what investors get on 10-year Treasuries, plus VTEB’s credit risk is almost non-existent as 92% of its holdings are rated AAA, AA, or A.

This Vanguard fund has an average duration of 5.4 years. That puts VTEB in intermediate-term territory, which is just fine as it’s likely the Federal Reserve cuts interest rates again this year, perhaps up to two more times .


Vanguard Total International Bond Index Fund ETF (BNDX)

Vanguard Total International Bond Index Fund ETF (BNDX)

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Expense ratio: 0.09%

For the conservative investor looking for to diversify away from U.S. government debt, the Vanguard Total International Bond Index Fund ETF (NASDAQ: BNDX ) is a fund that makes a lot of sense, and not just because the ETF has been on a streak of hitting record highs this year.

With low credit risk, this Vanguard fund lobs off a 30-day SEC yield of 2.87%. Plus, many of the ETF’s marquee country weights already have or are likely to join the U.S. in lowering interest rates, thereby increasing the value of the underlying bonds in this portfolio.

“Japanese bonds account for nearly 20% of the fund’s while European debt represents nearly 57%. Japan won’t be raising interest rates anytime and the European Central Bank (ECB) is pushing for easier monetary policy,” according to Nasdaq .

Another reason to like this Vanguard: it has a currency hedge, meaning it’s designed to benefit from strength in the U.S. dollar or weakness in the currencies its holdings are denominated in.


Vanguard Global ex-US Real Estate ETF (VNQI)

Vanguard Global ex-US Real Estate ETF (VNQI)

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Expense ratio: 0.12%

All that talk about lower interest rates, declining Treasury yields and investors playing defense is lifting domestic real estate funds, but don’t sleep on international equivalents. The Vanguard Global ex-US Real Estate ETF (NASDAQ: VNQI ), which features exposure to more than 30 countries, is up 10.2% year-to-date and yields 3.41%.

VNQI “focuses on closely tracking the index’s return, which is considered a gauge of overall non-U.S. real estate investment trusts’ and operating companies’ returns and offers high potential for investment growth; share value rises and falls more sharply than that of funds holding bonds,” according to Vanguard .

Home to 615 real estate stocks, this Vanguard fund can be considered an idea for conservative risk-takers due to its 20.40% exposure to emerging markets and its status as a mid-cap fund. Investors eyeing this Vanguard fund may want to wait because it allocates more than 12% of its weight to Hong Kong, a market battered in recent weeks due to geopolitical headwinds . The protests in Hong Kong are aimed at China, more than 10% of VNQI’s weight, so wait a bit on a this Vanguard fund.


Vanguard Total Corporate Bond ETF (VTC)

Vanguard Total Corporate Bond ETF (VTC)

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Expense ratio: 0.07%

Among corporate bond ETFs, it’s hard to find a larger lineup than the nearly 6,000 bonds featured in the Vanguard Total Corporate Bond ETF (NASDAQ: VTC ). VTC arrives at that massive lineup by holding the three other Vanguard corporate bond ETFs. The Vanguard Short-Term Corporate Bond ETF (NASDAQ: VCSH ) is VTC’s largest holding at a weight of 36.20%

While VTC’s largest allocation is to a short-term Vanguard fund, its exposure to intermediate- and longer-dated corporate bonds is enough to prop its yield up to a decent 3.36%. And that’s with nearly half its holdings rated AAA, AA or A.

VTC has an average duration of 7.3 years, which is below the 9.08 years on the Markit iBoxx USD Liquid Investment Grade Index. With interest rates falling and VTC’s lower duration relative to that rival index, the Vanguard fund is trailing that benchmark this year, but if VTC rebalances away from short-term corporates, its leverage to declining interest rates would increase.


Vanguard Mid-Cap Value Index Fund Admiral Shares (VMVAX)

mid-cap stocks

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Expense ratio: 0.07%

The Vanguard Mid-Cap Value Index Fund Admiral Shares (MUTF: VMVAX ) carries a $3,000 minimum investment, but this Vanguard is worth the cost of admission for conservative investors willing to bet on a value rebound while getting some mid-cap exposure.

“Value stocks are those that may be temporarily undervalued by investors,” according to Vanguard . “These companies typically grow at a slower pace than the broader group of mid-sized companies. One of the fund’s key risks is that mid-capitalization stocks tend to be more volatile than large-company stocks.”

This Vanguard fund holds 206 stocks, nearly a quarter of which hail from the financial services sector. Consumer staples and discretionary names combine for over 26% of VMVAX’s roster.


Vanguard High Dividend Yield ETF (VYM)

Vanguard High Dividend Yield ETF (VYM)

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Expense ratio: 0.06%

One of the largest and least expensive dividend ETFs, the Vanguard High Dividend Yield ETF (NYSEARCA: VYM ) is a solid bet for yield seekers and dividend growth investors. That’s the case because while VYM yields almost 3.05%, that yield isn’t so high as to imply reason for concern. Additionally, VYM does not feature excessive allocations to high-yield sectors like real estate and utilities. That’s good news because there are risks associated with high-yield stocks.

“Focusing on high-yielding stocks can be dangerous because these names may be under financial distress and at risk of cutting their dividend payments,” according to Morningstar. “Many pay out a large share of their earnings and have a narrow buffer to cushion these payments if their business deteriorates compared with lower-yielding counterparts.”

VYM holds nearly 420 stocks, many of which have a value tilt. The near-term risk with this Vanguard fund is its almost 19% weight to the financial services sector, which is being pressured by falling interest rates.

Todd Shriber doesn’t own any of the aforementioned securities.

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