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Last week, I reiterated my long-held, favorable opinion of index mutual funds as investment vehicles for individual investors, particularly for those who are beginners or less-experienced. I reinforced this view by citing the conclusions in David Swenson's critically acclaimed new book, "Unconventional Success."
Swenson, an extraordinarily successful money manager at Yale University's endowment fund, specifically recommends "passive index funds managed by a not-for-profit investment organization." This last mentioned type of investment management company includes but two firms: Vanguard and The Teachers Insurance and Annuity Association-College Retirement Equities Fund, more commonly known as TIAA-CREF.
With all due respect to TIAA-CREF, Vanguard is generally recognized as the leader in indexing with a wide variety of index fund offerings. In this particular segment of the mutual fund market, it's very difficult to beat Vanguard's quality, low-expense offerings.
I'm going to highlight eight Vanguard index funds that, as a whole, or as individual selections, are worth considering for a long-term investor's portfolio:
-- Vanguard Balanced Index (VBINX). This fund's portfolio consists of a fixed stock-bond portfolio allocation of 60 percent stock and 40 percent bond. The stock portion tracks the Wilshire 5000 Index, which is comprised of over 5,000 publicly-traded companies registered in the United States.
The bond portion tracks the Lehman Brothers Aggregate Bond Index. This profile provides an investor with broad stock/bond market exposure, below-average risk, and a very respectable 10-year average annual total return of 8.53 percent. It is not an exaggeration to think of this one fund as serving an investor's total investing needs.
-- If you want to tinker with asset allocation, i.e., taking more or less risk, than that in the Vanguard Balanced Index fund, you have this opportunity with the Vanguard Total Stock Market Index (VTSMX) and the Vanguard Total Bond Market Index (VBINX). These funds also track the Wilshire 5000 Index and the Lehman Brothers Aggregate Bond Index, respectively. Thus, you can change the stock and bond percentage allocation according to your individual risk-return objectives. For a higher risk-return posture, you could position your portfolio with 80 percent in VTSMX and 20 percent in VBINX. For less risk, switch to a 40-60 percent stock/bond mix.
The VTSMX and the VBINX have 10-year average annual total returns of 9.33 percent and 6.28 percent, respectively.
-- Currently, the Vanguard 500 Index (VFINX) fund is the largest, and very popular with investors. It tracks the Standard & Poor's 500 Index, which is comprised of 500 large U.S. companies, representing a wide variety of industries and business sectors. The VFINX's 10-year average annual total return is 9.41 percent.
-- The Vanguard Mid-Capitalization Index (VIMSX) includes 453 medium-size companies in the MSCI U.S. Mid-Cap 450 Index. With this fund, investors pick up some diversification from a stock category with some reasonable growth potential, but with less risk than the small-cap stock category. VIMSX only has an eight-year history; but since 2000, it has consistently out-performed the S&P 500 Index.
-- For international exposure, the Vanguard Total International Stock Index (VGTSX) and the Vanguard European Stock Index (VEURX) stick to large-cap, developed country stocks. Over the years, both funds have beaten their benchmark indexes and provide relatively safe foreign investing opportunities.
-- With the real estate sector cooling off, investors could profit from some moderate, patient buying into Vanguard's REIT Index (VGSIX), which consists of some 110 individual REIT stocks. This broad selection of real estate investments offers a healthy geographic and sector diversification to investors.
All these index funds are highly rated by Morningstar and reflect Vanguard's traditional no-load, low expense and turnover ratios, and investor-friendly access (1-877-662-7447). Index funds are excellent core choices for any portfolio.
The Investing Wisely column is written by Richard Loth, managing principal of Mentor Investing and an independent registered investment adviser. Loth can be reached at 328-5591 or mentor@centurytel.net.
Vail, Colorado
Swenson, an extraordinarily successful money manager at Yale University's endowment fund, specifically recommends "passive index funds managed by a not-for-profit investment organization." This last mentioned type of investment management company includes but two firms: Vanguard and The Teachers Insurance and Annuity Association-College Retirement Equities Fund, more commonly known as TIAA-CREF.
With all due respect to TIAA-CREF, Vanguard is generally recognized as the leader in indexing with a wide variety of index fund offerings. In this particular segment of the mutual fund market, it's very difficult to beat Vanguard's quality, low-expense offerings.
I'm going to highlight eight Vanguard index funds that, as a whole, or as individual selections, are worth considering for a long-term investor's portfolio:
-- Vanguard Balanced Index (VBINX). This fund's portfolio consists of a fixed stock-bond portfolio allocation of 60 percent stock and 40 percent bond. The stock portion tracks the Wilshire 5000 Index, which is comprised of over 5,000 publicly-traded companies registered in the United States.
The bond portion tracks the Lehman Brothers Aggregate Bond Index. This profile provides an investor with broad stock/bond market exposure, below-average risk, and a very respectable 10-year average annual total return of 8.53 percent. It is not an exaggeration to think of this one fund as serving an investor's total investing needs.
-- If you want to tinker with asset allocation, i.e., taking more or less risk, than that in the Vanguard Balanced Index fund, you have this opportunity with the Vanguard Total Stock Market Index (VTSMX) and the Vanguard Total Bond Market Index (VBINX). These funds also track the Wilshire 5000 Index and the Lehman Brothers Aggregate Bond Index, respectively. Thus, you can change the stock and bond percentage allocation according to your individual risk-return objectives. For a higher risk-return posture, you could position your portfolio with 80 percent in VTSMX and 20 percent in VBINX. For less risk, switch to a 40-60 percent stock/bond mix.
The VTSMX and the VBINX have 10-year average annual total returns of 9.33 percent and 6.28 percent, respectively.
-- Currently, the Vanguard 500 Index (VFINX) fund is the largest, and very popular with investors. It tracks the Standard & Poor's 500 Index, which is comprised of 500 large U.S. companies, representing a wide variety of industries and business sectors. The VFINX's 10-year average annual total return is 9.41 percent.
-- The Vanguard Mid-Capitalization Index (VIMSX) includes 453 medium-size companies in the MSCI U.S. Mid-Cap 450 Index. With this fund, investors pick up some diversification from a stock category with some reasonable growth potential, but with less risk than the small-cap stock category. VIMSX only has an eight-year history; but since 2000, it has consistently out-performed the S&P 500 Index.
-- For international exposure, the Vanguard Total International Stock Index (VGTSX) and the Vanguard European Stock Index (VEURX) stick to large-cap, developed country stocks. Over the years, both funds have beaten their benchmark indexes and provide relatively safe foreign investing opportunities.
-- With the real estate sector cooling off, investors could profit from some moderate, patient buying into Vanguard's REIT Index (VGSIX), which consists of some 110 individual REIT stocks. This broad selection of real estate investments offers a healthy geographic and sector diversification to investors.
All these index funds are highly rated by Morningstar and reflect Vanguard's traditional no-load, low expense and turnover ratios, and investor-friendly access (1-877-662-7447). Index funds are excellent core choices for any portfolio.
The Investing Wisely column is written by Richard Loth, managing principal of Mentor Investing and an independent registered investment adviser. Loth can be reached at 328-5591 or mentor@centurytel.net.
Vail, Colorado
