If you are on the brink of retirement and you want a relatively low-cost investment that won t lead you astray, your search should start with Vanguard mutual funds.
This article is not a sales pitch. I work for Vanguard and have no affiliation with the company except as a shareholder in their funds.
To get rich investing, the power of time beats a lucky stock pick.
Vanguard is under $1 billion in assets and is the only mutual fund firm with a financial structure to benefit shareholders in its mutual funds.
The companies funds are known for low expenses and the lower tax exposure that comes from low turnover. It should go without saying that Vanguard funds are no-load funds. No sales commission, no pressure.
From Vanguard's portfolio of excellent funds, here are nine that I like for retirees.
This is the first fund my wife and I invest each year. In January, we make our annual withdrawal from long-term investments to cover our expenses for the year ahead. This fund is also where we keep our emergency cash.
Because this fund holds no stocks, our finances are remarkably emotion-free. What we know about the stock market at any given moment, but how much we don't know would impact until the following year. How do you manage your money?
The withdrawal is not that you would be in a middle income tax fund, but you will probably earn nearly 100 times as much as you would get in a typical bank savings account paying this is really disgusting! 0.01% interest rate.
In the past 15 years, this fund appreciated by 3.27%.
It s never too late to have a happy retirement?
Their investors are likely to have above-average success as investors over the years.
It s because of the combination of growth and stability you more likely to be content to leave your money where it is instead of trying to figure out when to buy and when to sell.
None of the following eight balanced funds is designed to normally hold much more invested in equity than about 60%. The implication is they aren t likely to suffer the sort of major losses of all-equity funds.
Any one of these could make a good one-fund portfolio for a retiree. If you are already retired, this fund is your back. With an equity stake of just about 35% and the diversification of indirectly owning more than 10,000 stocks and 24,000 bonds, you wont go very far wrong. If you like the target date concept, but want a bit more equity exposure, it is easy to pick a variation focused on a later year such as 2020 or 2025.
These funds of funds come in aggressive combinations of equity exposure, from 20% to 80%, though I m excluding the most effective one from this discussion. All the bonds in these funds are investment grade, by the way. LifeStrategy Income Fund VASIX, typically holds only about 20% of its portfolio in equity funds, with the rest in bonds, perhaps a good fit for investors with ample resources more than they think they need, or those who are very skittish about the stock market.
LifeStrategy Conservative Growth VSCGX, doubles that equity stake to about 40%, maybe the right choice for conservative retirees who want some growth but are not willing to go very far out on a limb to get it.
LifeStrategy Moderate Growth VSMGX, is very similar, but with a 60 40 split of equity and bonds. This provides more growth, although still without much excitement.
Two funds for retirement people who don t know a lot about investing.
Often over the past 20 years I have recommended Vanguard Wellington Income Fund VWIAX and or Vanguard Wellesley Income Fund VWENX, For conservative retirees that I don t know well, Wellesley has become what I regard as my best piece of advice.
Wellesley has taken good care of investors since 1970. Its portfolio is generally 40% in bonds, 60% in equities. This is a low-cost actively managed fund holding about 70 large-cap stocks mostly value stocks and about 1,300 bonds.
For those less conservative, Wellington is my go-to suggestion, especially for people who value a very long track record.
Wellington has been in business since 1929 and was the industry s very first balanced fund.
Wellington s typical 60 40 split of equities and bonds mirrors the way that trustees of many large pension funds invest. They know they need reliable long-term growth and that their portfolios must be able to pay their pensioners in all circumstances.
Wellington is actively managed, with about 60 large-cap stocks and about 1,100 bonds.
My wife and I prefer an overall allocation of equities and bonds of 50-50. If it appeals to you, you could achieve that by split your money equally between Wellington and Wellesley.
Two more Vanguard balanced funds are worth considering.
VBIAX, the investment manager of Vanguard Balanced Index Fund (VBIAX), is actively managing, holding about 60% of its portfolio in 3,300 U.S. growth oriented stocks and the rest in approximately 10,700 bonds to stock industry.
Vanguard Tax-Managed Balanced Fund VTMFX, is managed to minimize capital gains distributions and other taxable income with a typical equity bond split closer to 50-50. If you like this allocation along with lower tax bills, this fund could be for you.
As you can see from the table below, level of risk and return are indeed linked, but not always what you would expect.
Funds are listed in order of their trailing 15- year compound annual growth rate as of early October For each, you will also see its performance during 2008, the worst calendar year for investors in a long time.
For more info on these funds plus four all equity funds, check out a video presentation I made last year: My 12 favorite Vanguard Funds for Retirees.