Investing in Vanguard funds can be a great way to get exposure to the stock market. However, choosing the best ones can be a daunting process. On Vanguard’s UK platform, there are currently 75 different funds to choose from.
Here, I’m going to highlight the top three Vanguard funds I’d buy today for my own portfolio. These funds aren’t likely to be suitable for everyone. However, they match my personal investment goals (long-term growth) and risk tolerance.
A ‘beginner’ Vanguard fund
The first one I’d invest in today would be the FTSE Global All Cap Index Fund. This particular fund tracks an index consisting of large, mid-sized, and small company shares in developed and emerging markets around the world. In other words, it provides very broad exposure to global stock markets. Given this broad approach, I think it’s a great ‘starter’ fund.
What I like about this fund, aside from its broad nature, is that it provides exposure to many world-class companies. The top 10 holdings, for example, include stocks such as Apple, Microsoft, and Amazon.
I also like the fee structure. The ongoing charge (OCF) is a low 0.23% per year.
While I see this product as a great starter fund, there are plenty of risks to consider. One is that the fund only invests in stocks, and these are higher-risk assets. Another is that it has significant exposure to the US, which looks expensive relative to other markets.
I’m comfortable with these risks, however. I see this fund as a great core holding.
Long-term growth potential
My next choice would be Vanguard’s U.S. Equity Index Fund. This tracks an index of large, mid, small and micro-sized company shares in the US. Its OCF is 0.1% per year.
Now, this may seem like a surprising choice. After all, I’m a UK investor. And the first fund I listed has plenty of exposure to US stocks. Why am I increasing my exposure to the US?
Well, my logic here is that historically, the US stock market has outperformed the UK. And looking ahead, I think there’s a good chance it will continue to do so. The reason I say this is that the US market has significant exposure to companies with strong long-term growth prospects in today’s digital world, such as Amazon and Apple. By contrast, the UK market has significant exposure to companies facing structural growth challenges such as Shell and British American Tobacco.
Loading up on US stocks is a risky approach, of course. This approach could backfire if the US market underperforms. There’s also foreign exchange risk to consider. These are risks I’m happy to take in the pursuit of higher long-term gains, however.
Finally, I’d invest in Vanguard’s Global Small-Cap Index Fund. This seeks to provide long-term capital growth by tracking an index that consists of small company stocks in developed markets. Its OCF is 0.29%.
Now, I’d expect this fund to be more volatile (higher risk) than the other two funds. That’s because small-cap stocks are typically more volatile than large-cap stocks.
However, history shows that small-cap stocks generally tend to outperform large-caps over the long term. So, I think this fund could play a valuable role in my diversified portfolio. It could potentially help me to achieve higher growth in the long run.