Best Vanguard Funds for Your Retirement Nest Egg

Vanguard is the biggest fund company in the land, with more than $3 trillion in assets. So chances are high that many retirement savers have access to Vanguard funds in their 401(k) plans. But size is no guarantee of good results.
Thirty-four Vanguard funds appear on a list of the 105 most popular mutual funds in employer-sponsored retirement savings plans. No other fund company comes close. Not surprisingly, of the 34 most popular Vanguard funds in retirement plans, 15 are index funds. And nine more are target-date portfolios—those set-it-and-forget-it funds that shift over time to more conservative allocations as the fund nears its target year. The remaining 10 are actively managed.
We didn’t analyze each individual index fund. For starters, Vanguard’s index offerings are well-managed and charge low fees. In other words, they come close to matching their underlying benchmarks. Your toughest decision with them boils down to which markets you want to track or which swath within a particular market you want to match. That’s why we focused on the actively managed funds that appear on the list, as well as Vanguard’s target-date fund series. Each warrants a closer look because investors need to understand what they’re buying. We rate the 10 actively managed funds and the collection of target-date funds Buy, Sell or Hold based on our analysis of the funds' performance and prospects. A Buy rating indicates the best Vanguard funds for your retirement savings from among the group of funds analyzed.
Vanguard Capital Opportunity: BUY
Symbol: VHCOX; Expense ratio: 0.45%; Assets: $13.7 billion; One Year Return: 9.9%, Three year annualized total return: 11.4%, Five year annualized total return: 17.5%; Ten year return: 9.0%, Yield: 0.7%
Capital Opportunity is closed to new investors, but you’re in luck if the fund is offered in your employer-sponsored retirement-savings plan—that rule doesn’t apply.
Primecap Management has run Capital Opportunity since 1998. Each of the fund’s five managers independently runs his own slice of the fund’s assets. But they all follow the same approach, focusing on large and midsize companies with strong growth potential that are trading at bargain prices. When they buy, they hold: The fund has a low turnover ratio of 7%, which implies that the managers typically hold a stock for more than a decade. Since Primecap took over Capital Opportunity, it has returned 13.4% annualized, beating Standard & Poor’s 500-stock index by an average of 7.2 percentage points per year.
Vanguard Explorer: SELL
Symbol: VEXPX; Expense ratio: 0.49%; Assets: $11.4 billion; One-year return: 5.6%; Three-year annualized total return: 5.1%; Five-year annualized total return: 13.4%; Ten-year annualized total return: 7.1%; Yield: 0.5%
Explorer’s results have been subpar. In eight of the past 11 calendar years (including so far in 2016), the fund has trailed its chosen benchmark, the Russell 2500 Growth index (which tracks stocks of 2,500 fast-growing small companies). On a trailing basis, it falls behind, too. Over the past 10 years through October 11, Explorer lagged its bogey by an average of 1.2 percentage point per year.
Vanguard Inflation-Protected Securities: SELL
Symbol: VIPSX; Expense ratio: 0.20%; Assets: $25.3 billion; One-year return: 5.0%; Three-year annualized total return: 2.1%; Five-year annualized total return: 1.6%; Ten-year annualized total return: 4.3%; Yield: -0.14%
This actively managed fund does what it’s supposed to do. It invests in Treasury inflation-protected securities, or TIPS, which provide a hedge against rising consumer prices. These bonds, which are backed by the full faith and credit of the U.S. government, pay a modest guaranteed return above the rate of inflation. But the fund currently pays a negative yield in part because of the double whammy of generally low expectations for inflation and the persistently low interest-rate environment.
Vanguard International Growth: BUY
Symbol: VWIGX; Expense ratio: 0.47%; Assets: $23.0 billion; One-year return: 6.5%; Three-year annualized total return: 2.1%; Five-year annualized total return: 8.0%; Ten-year annualized total return: 3.9%; Yield: none
Vanguard Morgan Growth: HOLD
Symbol: VMRGX;Expense ratio: 0.40%; Assets: $11.2 billion; One-year return: 1.7%; Three-year annualized total return: 9.8%; Five-year annualized total return: 13.8%; Ten-year annualized total return: 7.3%; Yield: 0.9%
Morgan Growth charges low fees, but it is otherwise a middling large-company stock fund. In six of the past 11 calendar years (including so far in 2016), the fund underperformed the S&P 500. Over the past 10 years, it has essentially matched the S&P 500 and the average large-company growth fund.
Vanguard Primecap: BUY
Symbol: VPMCX; Expense ratio: 0.40%; Assets: $47.4 billion; One-year return: 11.2%; Three-year annualized total return: 12.8%; Five-year annualized total return: 16.7%; Ten-year annualized total return: 9.3%; Yield: 1.4%
From Primecap’s debut in 1984, the fund returned 13.4% annualized, handily beating the S&P 500 by an average of 2.4 percentage points per year. Few funds have done better. Primecap is closed to new investors, but if the fund is offered in your employer-sponsored retirement-savings plan, you can ignore that rule.
Vanguard Wellesley Income Fund: BUY
Symbol: VWINX; Expense ratio: 0.23%; Assets: $49.9 billion; One-year return: 8.5%; Three-year annualized total return: 6.8%; Five-year annualized total return: 8.3%; Ten-year annualized total return: 7.0%; Yield: 2.5%
Conservative investors looking for a no-fuss stock-bond portfolio should consider Wellesley Income. It typically holds 60% to 65% of its assets in bonds and the rest in stocks.
Vanguard Wellington Fund: BUY
Symbol: VWELX; Expense ratio: 0.26%; Assets: $92.2 billion; One-year return: 7.2%
Three-year annualized total return: 7.3%; Five-year annualized total return: 10.6%; Ten-year annualized total return: 7.0%; Yield: 2.3%
With its 100th birthday a little more than 12 years away, Wellington is Vanguard’s oldest and biggest actively managed fund. A member of the Kiplinger 25, Wellington invests about two-thirds of its assets in stocks and the rest in bonds.
Vanguard Windsor: HOLD
Symbol: VWNDX; Expense ratio: 0.39%; Assets: $17.0 billion; One-year return: 4.1%; Three-year annualized total return: 6.8%; Five-year annualized total return: 14.5%; Ten-year annualized total return: 5.5%; Yield: 1.8%
Windsor, which launched in 1958, was a solid performer for nearly five decades. But lately, it has been ho-hum. Over the past 10 years, the fund’s 5.5% annualized return slightly outpaced the average for its peer group—funds that invest in undervalued large-company stocks—and slightly lagged its bogey, the Russell 1000 Value index.
Vanguard Windsor II: SELL
Symbol: VWNFX; Expense ratio: 0.34%; Assets: $45.7 billion; One-year return: 5.3%; Three-year annualized total return: 7.1%; Five-year annualized total return: 13.2%; Ten-year annualized total return: 5.6%; Yield: 2.2%
Like sibling Windsor, Windsor II invests in bargain-priced large-company stocks. But this fund has over twice as much in assets, and close to three times as many managers. And yet, with 11 managers from five subadvisers at the helm, Windsor II can’t manage to outpace its benchmark, the Russell 1000 Value index, which tracks shares of large, undervalued companies.

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