Our curated rankings of the top Vanguard mutual funds were created by applying a screen of several “must-have” metrics:
Morningstar rating. All of the funds selected have at least a 4-star rating from Morningstar. This is a quantitative, rearward-looking measure of a fund’s historical performance.
Morningstar medal. All the funds selected also earn either a silver or gold medal from Morningstar, indicating the company’s analysts have high conviction that the strategy will outperform a relevant index or most of its peers over a market cycle.
Total assets. All the funds selected have at least $1 billion in assets under management. Higher assets indicate greater investor confidence and interest in a fund.
Expense ratios. All of the funds selected have an expense ratio of 0.51% or less to reduce the drag that fees have on long-term returns.
Why other funds didn’t make the cut
This list is by no means exhaustive. Many other great 401(k) funds offer similar benefits to those listed above. Each 401(k) plan offers select investment options, so the key is to sort through them to find the best fit for you.
To choose the best 401(k) investments, we ruled out funds with expense ratios above 0.51%. Research shows the impact fund fees can have on long-term returns.
That isn’t to say higher fees are always bad. Many actively managed funds charge higher fees to compensate for the higher levels of research and oversight that go into the fund’s portfolio management. But if you use a fund that charges a higher fee, ensure you are adequately rewarded for the cost through superior returns or downside protection.
We also chose to focus on broader funds rather than those specializing in a particular sector for ease of diversification. Sector funds can be great additions to a 401(k) portfolio, but you want to ensure you combine them with other funds to benefit from true diversification.