Investing in Vanguard funds can be a great way to get exposure to the stock market. However, identifying the best ones can be a daunting process. On Vanguard’s UK investment platform, there are over 80 products to choose from.
Here, I’m going to highlight three I’m considering for 2023. I think these products could play a valuable role in my portfolio and help me build my wealth over the long term.
A core holding
One fund I believe could be a good core holding is the Vanguard FTSE Global All Cap Index. This is a diversified product that provides exposure to over 7,000 stocks globally.
There are a number of things I like about this fund. One is that it has plenty of exposure to the US stock market (around 60% of the fund is currently allocated there). Over the long term, the US market has generated higher returns than the UK market, due to its technology exposure.
Another thing I like is that it provides exposure to some world-class companies. Right now, the top 10 holdings include Apple, Microsoft, and Berkshire Hathaway (Warren Buffett’s company).
It’s worth pointing out that this fund only invests in stocks. This makes it a higher-risk product (its risk rating is 5 out of 7). I’m comfortable with the risk level though, as I’m a long-term investor and I have time to ride out short-term stock market volatility.
An ESG fund
The Vanguard ESG Developed World All Cap Equity Index could be another good core holding for me. This also provides broad exposure to the stock market. However, the key feature here is that it has an ESG (environmental, social, and governance) focus. The aim is to exclude companies that have a negative impact on society and/or the environment such as those involved in weapon production or fossil fuel mining.
The reason I’m interested in this particular fund is history shows that companies with an ESG focus tend to generate higher levels of profitability than low-rated ESG companies. This higher level of profitability tends to lead to higher long-term returns for investors.
Of course, there’s also a feel-good factor here. It would be nice to know my money is going into companies that operate responsibly and think about the environment.
One issue to be aware of with this fund is that it only focuses on ‘developed’ countries. So there’s no exposure to the likes of China, India, or Brazil. This is not a deal-breaker for me however.
Small-caps for growth
Finally, for a more adventurous product, I’m looking at the Vanguard Global Small-Cap Index Fund. This has a focus on smaller companies in developed markets.
The reason this fund interests me is that history shows that small-cap stocks often outperform large-cap stocks over the long term. This is two-fold. Smaller companies tend to grow faster than large ones and smaller companies are less researched than large ones. So this product could potentially boost my investment returns over time. It could also help diversify my portfolio.
This is a riskier fund (its risk level is 6 out 7). That’s because small-cap stocks tend to be quite volatile. I’m prepared to take on extra risk in the pursuit of higher long-term returns though.
