How I invest with Vanguard

Vanguard’s website is very user friendly and it takes just minutes to open up a brokerage account with them. I learned about Vanguard from an ad on Google and after reading a few articles I was hooked. I quickly realized that all the funds that Vanguard offered were low-cost and I could quickly build a portfolio that would suit my needs based on my investment horizon. When I started looking at Vanguard funds I was considering a few different funds and wanted to make sure that I was keeping the end in mind when considering funds:

  • Cost
  • Risk tolerance
  • Asset Allocation
  • Investment Horizon

With these four pillars in the back of my mind, I began to dig-in to the plethora of funds that Vanguard has on their website, which are easy to compare and sort when searching through all of the funds.


Case Study: David’s Dollars

So, where was I going to put my money ? I began by trying to grasp a holistic approach to investing in the market. I knew that my investment horizon was over 30 years, which meant that I knew I would be investing in an all stock allocation because my portfolio could afford to take small bumps along the way in exchange for greater return. I also knew I wanted very low cost, because my investment horizon is long term, I knew that over the long run I really needed to keep costs as low as possible to ensure they wouldn’t eat into my retirement years. Coming from that mindset, I came across VTSMX, which is Vanguard’s Total Stock Market Index fund. VTSMX captures the entire U.S. equity market, which basically means that I can own the entire stock market in just one fund! WOW!

Is it that easy? Was buying just one fund really the way to go? Can owning the entire stock market really pay off in the long run ? I was convinced that some of the actively managed funds Vanguard had must perform better that the total stock market index fund (VTSMX), so I went to digging. Some funds that I really admired are managed by the PRIMECAP management group, but, unfortunately, are closed to new investors. Another fund that I really admired, and actually more admiration of the fund manager Don Kilbride, is the actively managed fund, Vanguard Dividend Growth fund (VDIGX).

You might be thinking: “Wait a minute, I thought you were only looking at low cost index funds”, and I thought I was too, but I couldn’t get away from the 10 year performance of the VDIGX fund. What makes it so great ? Well, surprisingly,(actually it shouldn’t be a surprise) after I looked at the performance of VDIGX vs VTSMX I found out some interesting things about VDIGX. Out of the past 10 years VDIGX only outperforms the total stock market index fund (VTSMX) 5 out of the past 10 years. You may be wondering, “how then can VDIGX have a higher 10 year return than VTSMX” ? Great question! Let’s take a look at the returns from the last 10 years.


VDIGX totalstock






As you can see, VDIGX only outperforms VTSMX 5 out of 10 years, or 50% of the time, which really isn’t that great. BUT, if you look at VDIGX’s ability to handle itself in the “recession” of 2008 and the “stagnation” of 2011, it’s performance is quite remarkable. What really pushes VDIGX into beating VTSMX over the 10 year period is really it’s ability to heavily stay afloat during 2008 when the stock market took a hard nose dive.

So…how did I end up investing my money?

I decided to invest in a split between VTSMX and VDIGX. I invested in VTSMX because in the long run I wanted to keep costs low, returns high and in general, keep my portfolio in pace with the total stock market. I invested in VDIGX because, in the event of a downturn, I believe VDIGX will soften the blow of getting hit on the rocky shores. Over the years we will see how my portfolio holds up, and hopefully, I will be able to report solid performance year after year!



How do YOU invest ? What were some factors that led you to pick certain funds ?



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