Best Vanguard Index Stock & Bond Funds: How To Invest (+ tips)

It’s no secret that Vanguard is my favorite company to use for investing. I believe they have some of the best index funds available. 

Are you ready to get started on your investing journey (or maybe you’re looking to diversify your current portfolio)? If so, I’ve put together a comprehensive list of the best Vanguard Index Funds from stocks to bonds and everything in between, and how to get invested today.

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Table of Contents

What Are Vanguard Index Funds?

Vanguard Index Funds are comprised of hundreds of stocks and/or bonds. The goal isn’t to pick a few “winners” and beat the market. The goal is to get as much diversification as possible to match the market.

While a managed fund may individually choose stocks, index funds invest in most of the funds in a specific index (i.e., S&P 500, Dow Jones, Nasdaq).

When you purchase shares of an index fund, you’re basically buying into that market as a whole. Having shares in a Vanguard US stock index fund is like having shares in the entire US stock market. You own a little bit of everything instead of owning shares in a single company.

Index funds also tend to have lower taxes since they don’t buy or sell frequently like managed funds. Index funds also cost less than managed funds because there’s less time spent hand-picking stocks and bonds.

How Do Vanguard Index Funds Work?

When building a stock index fund, Vanguard purchases shares from several different companies. Vanguard’s goal is to match its ownership of a given company to that company’s share of the overall market.

For example, let’s say a Vanguard fund has $100 to invest and that Amazon represents about 10% of the entire stock market. In this case, Vanguard would invest $10 into Amazon and the remaining $90 into other companies. If Amazon’s value grows, Vanguard buys more. If it shrinks, Vanguard buys less.

Then, when you buy shares in that index fund, you have a claim to a small percentage of all those investments that Vanguard makes on your behalf. When those companies give dividends, you get your cut. And as the value of the market grows or shrinks, the value of your investment changes with it.

This is how index funds work across all their respective markets: stocks, bonds, real estate, international stocks and bonds, etc. Vanguard has 80 index exchange-traded funds and more than 60 main index funds from which to choose. Each of them tracks their respective market as closely as possible.

Ready to get started? I have all the details in this article: “How to Invest in Index Funds”.

Our Take On Vanguard Index Funds

Vanguard is an excellent option for index funds. They started the index fund revolution and set the standard for the entire industry. Compared to index funds from other firms, Vanguard either has the lowest fees or comes really close.

They do have one major downside: most of their funds require at least a $3,000 deposit to get started.

In the past, the lowest fees from their Admiral Funds didn’t open up until you had $10,000 invested. Vanguard did eliminate this restriction and now offers its lowest fees at the $3,000 minimum. It’s a good example of Vanguard always looking for ways to reduce their fees.

For first-time investors, $3,000 is still a steep requirement. Many index funds at other firms don’t have any minimums; you could start with an investment of $10 if you wanted to.

When I was starting, I saved up $3,000 to open up my first Vanguard investment fund. That’s one option.

But if the $3,000 minimum is too steep, I’d go with another firm.

And if you’re now wondering whether investing is right for you at all, have a listen to this interview I did with Camden and Bret from Money for the Rest of Us, to discuss how to approach investing for the first time.

The Cost And How To Buy Vanguard Index Fund Shares

Every index fund has an expense ratio; it’s a percentage that the fund charges you every year based on your total investment in that fund.

Most of the Vanguard index funds have an expense ratio in the 0.04% to 0.15% range. As a rough rule, simple index funds like total stock or bond indexes are on the lower end, and more complicated markets like precious metals will have higher fees. It wasn’t that long ago that mutual funds would charge 1-2%, so these expense ratios are super low.

Vanguard does technically have an annual service fee of $20 per account. There are two ways to avoid this fee:

  1. Have at least $10,000 in the account
  2. Agree to electronic delivery for all documents

Since electronic documents are almost always easier, most folks can easily get the fee waived. So all you have to worry about is the expense ratio on your funds. Everything else is free. That includes buying and selling Vanguard index funds.

A list of Vanguard’s fees is here.

The Best Vanguard Index Funds

Vanguard has dozens of index fund options to choose from.

If I had to pick only four index funds to invest in for the rest of my life, it would be these four. They have the best combination of:

  • Simplicity
  • Low fees

Diversification across asset classes

For most folks, these are the only index funds you need. You could easily build an entire retirement around just these funds.

  • Vanguard Total Stock Market Index Fund (VTSMX): The Total Stock Market Index Fund puts investors in the middle of the U.S. equity market. The fund covers all ranges of investments, from small to large-cap and value stocks. Overall stock market volatility is the biggest risk here.
  • Vanguard Total International Stock Index (VTIAX): The VTIAX gives investors exposure to international stock markets, which tend to have a low correlation with US stock performance, which makes it a great option for diversification. The index focuses on both emerging and developed markets.
  • Vanguard Total Bond Market Index Fund (VBMFX): This index fund invests 30% in corporate bonds and 70% in U.S. government bonds over a range of short, mid, and long-term levels. This fund invests in all areas of the fixed-income market. It’s a great option for getting full exposure to the US bond market.
  • Vanguard Total International Bond Index Fund (VTABX): The VTABX exposes investors to non-U.S. investment-grade bonds. This fund focuses on governments, corporate securities, and international agencies. The fund is a mix of developed and emerging countries.


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The Lazy Portfolio Of Vanguard Index Funds

If the idea of scouring the list of stock prices makes your head hurt, you could choose a lazy portfolio option. A lazy portfolio option is exactly what it sounds like: investing with minimal effort.

There are a few ways you can do this.

With a two-fund portfolio, you split your investment between stocks and bonds; a popular option is the 60/40 split.

By allocating 60% of your investment towards stocks and 40% towards bonds, you put some money at risk for bigger returns while protecting the rest of your investment in bonds, which tend to be less risky. If you went this route, you’d have an entire portfolio with just the VTSMX and VBMFX funds.

For the three-fund lazy portfolio, you divide your investments between stocks, international stocks, and bonds. If you follow the 60/40 rule for this type of investment, you would split the 60% stock investment between U.S.-based stocks and international stocks, with the remaining 40% in bonds.

Finally, in a four-fund portfolio, you divide your total investment into four parts: U.S. stocks, small-cap U.S. stocks, international stocks, and bonds. Alternatively, you could factor in international bonds over one of the stock options.

Here’s the split that I use:

  • 80% in stocks and 20% in bonds.
  • Of the stock portion, 70% is in US stocks and 30% in international stocks.

That’s a super simple yet very effective three-fund lazy portfolio. It requires almost no effort to maintain and has gotten me a handsome 10% annual return during the decade-long bull market that we’ve had.

In general, weigh more heavily towards stocks when you’re younger. Then weigh more heavily towards bonds as you get closer to retirement.

I go into more detail on the lazy portfolio here.

Investing early (and often!) can yield incredible results. In episode 108 of my podcast, I speak with a couple about their $4.3 million portfolio and what it took for them to achieve F.I.R.E.

Other Options For Index Funds

While Vanguard is the oldest and most well-known company that provides index funds, many companies offer index funds.

Before you choose a company to work with, consider the following:

  • Does this company offer the type of funds I want or need?
  • What are the annual fees like?
  • Are there other services or trading fees?
  • Do I prefer to keep my accounts consolidated at a single bank?
  • How much is the minimum investment required for each fund?
  • Do I need to have an account minimum to maintain a brokerage account with certain companies?

Other index fund options include Schwab, Fidelity, and TD Ameritrade. All three are great options with solid reputations.

Looking for reliable investment options? Learn About the Best Mutual Funds for safe returns.

Frequently Asked Questions About Vanguard Index Funds

Which is better VTI or VOO?

It’s a choice that depends on your personal preferences and investment goals. If you value the reputation and recognition of the S&P 500 and you want to focus on large-cap stocks, then VOO might be a more appealing option. On the other hand, if you’re open to exploring mid- and small-cap stocks and desire a more diversified portfolio, then VTI could be a compelling choice.

Consider that both ETFs are influenced by their respective indexes’ market-cap weighting, which means their performances are likely to be comparable in the long run.

However, there could be slight deviations in certain market conditions. For instance, if mid- and small-cap stocks experience significant growth, VTI may outperform VOO by a small margin. Conversely, if large-cap stocks regain dominance, VOO might come out ahead.

Which is the best S&P 500 index fund?

The S&P 500 is renowned as one of the most widely watched stock market indices worldwide, and it has attracted numerous funds that aim to mirror its performance. Among the multitude of choices available, five standout funds deserve special mention and capture the attention of investors.

  • Schwab S&P 500 Index Fund (SWPPX)

The Schwab S&P 500 Index Fund seeks to replicate the performance of the S&P 500 index. It offers a low expense ratio and provides investors with broad exposure to the largest U.S. companies across various sectors.

  • Fidelity ZERO Large Cap Index (FNILX)

Fidelity’s ZERO Large Cap Index Fund is designed to closely track the performance of the S&P 500 index. Notably, it has the unique feature of a zero expense ratio, making it an attractive option for cost-conscious investors.

  • Vanguard S&P 500 ETF (VOO)

Vanguard’s S&P 500 ETF is an exchange-traded fund that aims to mirror the performance of the S&P 500 index. It provides investors with exposure to the largest U.S. companies and is known for its low expense ratio and long-standing reputation.

  • iShares Core S&P 500 ETF (IVV)

The iShares Core S&P 500 ETF is an exchange-traded fund that seeks to replicate the performance of the S&P 500 index. It offers investors broad exposure to the U.S. large-cap segment and is known for its liquidity and low expense ratio.

  • SPDR S&P 500 ETF Trust (SPY)

The SPDR S&P 500 ETF Trust is one of the oldest and largest exchange-traded funds tracking the S&P 500 index. It provides investors with exposure to a diverse range of U.S. large-cap stocks and is known for its high trading volume and long-established presence in the market.

Why is VTI so popular?

VTI’s passive indexing approach, historical performance, and accessibility as an ETF have made it a preferred choice for investors seeking a reliable and cost-effective investment option. Its extensive holdings effectively represent the entirety of the investable U.S. market. Notably, VTI includes exposure to small-cap stocks, which tend to exhibit greater volatility compared to mid- and large-cap holdings. In terms of market correlation, the fund boasts a beta of 1, indicating its movements align closely with the broader market.

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Host of Netflix's "How to Get Rich", NYT Bestselling Author & host of the hit I Will Teach You To Be Rich Podcast. For over 20 years, Ramit has been sharing proven strategies to help people like you take control of their money and live a Rich Life.