Paul A. Merriman
If you’re retired or on the brink of retirement and you want a relatively simple low-cost investment that won’t lead you astray, your search should start with Vanguard mutual funds.
Let me be clear: This article isn’t a sales pitch. I don’t work for Vanguard and I have no affiliation with the company except as a shareholder in their funds.
Vanguard has more than $7 trillion under its management and is the only mutual fund company with a financial structure built to benefit the shareholders in its mutual funds.
The company’s 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 sales pressure.
From Vanguard’s offering of excellent funds, here are nine that I like for retirees.
Vanguard Short-Term Investment Grade Fund /zigman2/quotes/206043114/realtime VFSUX 0.00%
This is the first fund my wife and I invest in every 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. No matter what’s happening in the stock market at any given moment, we know that won’t affect us until the following calendar year. If you’ve never tried managing your money like this, I recommend it.
You won’t get rich in this fund, but you’ll probably earn nearly 100 times as much as you’d get in a typical bank savings account paying (this is really disgusting!) 0.01% interest.
Over the past 15 years, this fund appreciated at 3.27%.
Balanced funds: boringly beautiful
Balanced funds hold both stocks and bonds. Over the years their shareholders are statistically likely to have above-average success as investors.
Why is that? Not because the funds themselves have any magic. It’s because the combination of growth and stability make 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 than about 60% in equities. That means 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. But don’t choose at random; the differences matter.
Vanguard Target Retirement 2015 /zigman2/quotes/200793742/realtime VTXVX +0.18%
If you’re already retired, this fund of funds has your back. With an equity stake of only about 35% and the diversification of (indirectly) owning more than 10,000 stocks and 24,000 bonds, you just won’t go very far wrong. You’ll get some growth plus a good measure of stability.