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BEST VANGUARD FUNDS: ETFs and Index Funds For Financial Independence
One of the major challenges that my immigrant parents had to build wealth was that they had to do the heavy lifting and work for every penny.
It meant that they had to work for years longer than they needed to.
Knowledge was not easily available and people did not reliably share how to invest money.
Even where they got a glimpse of how to invest, they did not have any ideas about what to invest in.
I was determined to do this journey of wealth building differently by making one small tweak: putting money in the right environment to compound and grow.
This one shift in thinking has changed my life forever and changed the financial destiny of our children.
Today we're financially independent and could not have reached this stage of the money journey by just saving money and “working hard”.
Today I want to give you a peek into our investment portfolio by focusing specifically on the Best Vanguard Funds: ETFs and Index Funds for Financial Independence.
I'll be sharing 4 equity funds specifically.
These are some of the funds that we currently investing in right now and some others that we've invested in previously and think are good funds to invest in for financial independence.
They're by no means the only funds that you can invest in, of course! I'm just focusing on a handful for today's post.
What you invest your money into to achieve financial independence really does matter.
- how much you generate in returns by investing your money,
- how long it takes for you to actually achieve your goals,
- and how much peace of mind you have from investing your money every single month.
From the 4 funds that I mention, you only really need a couple of them to create a simple global portfolio.
These funds I'm sharing today, are not the only funds that you can explore to invest in for financial independence.
However, these have the rights characteristics in that they employ a passive investing strategy.
They are super cheap to invest in, and they've been known to deliver cracking returns over the last few years.
In addition to these funds I'm mentioning, it's definitely worth mentioning that you should consider having some allocation to bonds and cash.
These will give you a level of protection depending on what your attitude to risk is as well as where you are currently on your wealth accumulation journey.
If you're interested in Ethical or Socially Responsible Investing (SRI), I share a link later below too for how to research those funds and start investing.
Table of Contents
BEST VANGUARD FUNDS UK: Our Portfolio Perspective
So please take what you can from today's post and use it to create an investment portfolio that really works for you.
One that fits your own personal circumstances as well as designed to help you achieve your specific financial goals.
It's worth mentioning that all the funds that are mentioned here are not in any way shape or form financial advice to you.
It's not a financial recommendation.
This is purely me sharing from an educational perspective, so do please make sure you carry out your own personal research.
Now before we go into the specific index funds and ETFs is very important to understand what an index fund and an ETF are.
Learn more here or watch my fun video (with bloopers) comparing ETFs and index funds.
BEST VANGUARD FUNDS 1: FTSE Developed World ex-UK Equity Index Fund Accumulation
This index fund is one that we currently invest in within our ISA because it's a globally focused fund that tracks the FSTE Developed World ex-UK index.
The “ex-UK” bit means that it excludes the UK as a market.
This particular index is comprised of large and medium-sized companies in developed markets specifically.
This fund is ideal if you are someone who has a lot of exposure to the UK market but wants “developed world” exposure without more exposure from UK-focused equities.
So for example, you might have a lot of exposure to property already via your home or via investments in property assets.
This particular fund might be useful if you're somebody who wants to remove that local bias and gain further exposure to other markets around the world.
It's super cheap at just 0.14% per annum as the Total Expense Ratio (TER), and it delivers an impressive annual return.
Of course, past performance doesn't inform future results.
But it's just quite interesting looking back at what the performance of this particular fund has been. Look at the 4th column below:
The fund size (~£9.2 billion) is also good. A fund size of over a billion pounds or dollars is usually a good size to aim for.
Index Fund NAV Price
You can see that the price (of the NAV – Net Asset Value) for this particular fund at this very moment is £481.44 per share.
As this is an Index Fund, you don't need to stump up £481.44 per se to own a piece of it.
You can buy as much as you can afford provided it meets the Vanguard minimum.
However, if this was an ETF or a stock (as they're traded on the stock market), the price of the ETF or stock would matter as you need to buy them unit by unit at the relevant price.
Note there are 2081 stocks within this one fund alone.
In terms of minimums to invest, it's super low.
It's either a £500 lump sum or £100 per month on a direct debit basis. These terms also apply to the other 3 funds that we'll cover today.
Index Fund Performance
Performance over the last 3 years has been pretty good.
This particular fund was created back in 2009. Below is the cumulative performance:
It has done cumulative returns of 385.72% (after fees, etc) since inception, which I think is pretty amazing when you think about it.
However, there are other funds, which we'll talk about later which have done way better than this particular fund has done for the same time period.
Performance-wise for this fund, you can see on the picture below, that the illustration of £10,000 lump-sum invested in this fund back in 2009, would be sitting at £47,632 pounds today in 2021.
That's a Compounded Annual Growth Rate (CAGR) of about 13.89%, implying that it took around 5 years and 3 months to double the money.
That's 4.7 times your money in the 12 years that this particular fund has been in existence.
Index Fund Allocation
Note that 70.3% of this fund is allocated to North America, with 67.5% of that being to the USA.
This fund also has allocations to other regions such as Europe, the Pacific, Middle East, and a tiny allocation to other countries as well.
The allocation to Europe of 15.3% has a zero allocation to the UK, which is very important to note.
When you dig a bit deeper, you can see that from a sector perspective, there's quite a large allocation to technology of 22.8%. In total there is a wide allocation to 11 different sectors:
And when you dig even deeper into the key holdings within this particular fund, you can see the likes of Apple, Amazon, Facebook, Tesla, Alphabet (Google), and so on:
In summary, this fund is well diversified.
It focuses on giving you access to the performance of large and mid-sized companies in developed markets (i.e. avoiding the emerging markets).
There is a larger than normal exposure to the USA (67.5%) relative to the US equity share (circa 56%) of global stock market capitalisation.
The low cost (0.14%) of the fund helps to further put your money to work and enhance your returns.
BEST VANGUARD FUNDS 2 – Vanguard FTSE All-World UCITS ETF (VWRL)
This is a super popular fund and for good reason. I invest in this fund at the moment within my pension.
As the name implies, this is an Exchange Traded Fund (ETF) that employs passive investing through the physical acquisition of securities.
I invest in this because it's a global fund that tracks the FTSE All-world index.
It covers about 95% of the investable universe (3,574 Stocks in nearly 50 countries) and in particular, this ETF is comprised of large and medium-sized companies.
However, note it's comprised of companies in both the developed markets and the emerging markets.
This includes exposure to countries in the emerging markets such as China, Brazil, India, South Africa, Mexico, even Russia, and so on.
It also has an allocation to the UK of 4.1%, given its “All-world” remit.
ETF Share Price
The price of this particular fund by the net asset value is £83.03 per share and it has a lot more companies that it invests in compared to the first one I shared.
And the Total Expense Ratio (TER) for this fund is still fairly cheap at 0.22% given the All-World exposure.
Again, the minimums are quite low at £500 lump sum or £100 per month.
The exposure to the emerging markets adds more volatility to this fund compared to the first one shared.
You can see how this is reflected in the past performance of this fund compared to the first one I shared above.
You can also see above the total return of this fund by year going as far back as 2012 when it first began.
The cumulative return of this fund since inception is 176.12% since it was launched in May 2012.
Looking at the performance of a $10,000 investment since inception in 2012, that investment (after fees, etc) would be sitting at around $28,532.
That's a Compounded Annual Growth Rate (CAGR) of 12.36%, implying that it took around 5 years and 11 months to double the money.
Notice the allocation to North America is much lower 59.7% with 57.2% of that being to the USA specifically.
There's a 4.1% allocation to the UK and a total of 17% allocation to Europe and so on.
By sector, you can see technology again remains quite a high allocation at 22.4% followed by consumer discretionary at 15.7%.
And then it carries on like that:
In terms of detailed holdings, you can see the usual suspects, Apple, Microsoft, Amazon, and so on.
But this time around, because this also has exposure to emerging markets, so you can see companies in the top 10 such as Tencent and Taiwan Semiconductor Manufacturing, for example:
In summary, this fund better represents the global allocation of equities by country.
USA makes up 57.2% and the UK 4.1%, and you get access to 95% of the investable universe.
Worth noting that any dividends by this fund are “distributing” (i.e. paid out) rather than “accumulating” (re-invested automatically to compound)
To learn how to invest your money confidently as a complete beginner within 12 days, check out our investing program, Super Simple Investing.
BEST VANGUARD FUNDS 3 – Vanguard FTSE Global All Cap Index Fund Accumulation
This particular fund takes things to a whole new level when it comes to giving you global exposure.
Not only is this fund giving you global exposure, but it's also giving you exposure to all caps.
By all caps, I'm talking here, exposure to large companies to medium-sized companies as well as to small companies.
In addition to that, you are also getting exposure to the developed world and the emerging markets by investing in this particular fund.
This fund tracks the FTSE global all-cap index and has a large number of stocks within it – 6,893 stocks.
The total expense ratio is 0.23%, so just marginally more expensive than some of the others.
And in terms of investing from a minimum perspective, again, it's the same as all the others £500 minimum or £100 per month.
Index Fund Performance
The performance has been pretty good, with an increase of 12.5% and 21.54% in 2020 and 2019 respectively.
A similar dip (compared to the other funds) of -4.52% was experienced in 2018.
Cumulative performance since it was launched in 2016 is 65.51%:
Although some of these other funds have been around for much longer than this particular fund, here is what a £10,000 investment in 2016 would have looked likein 2021:
The above results in a Compounded Annual Growth Rate (CAGR) for the £10K investment of 10.26%, implying that it took around 7 years and 1 month to double the money.
You get a dividend yield with this fund of 1.33% gross, which is accumulating and gets reinvested for you automatically.
Index Fund Allocation
In terms of the portfolio makeup here, you've got a large allocation to North America of 60.51%.
The US makes up 57.8% of the allocation, which is quite a similar allocation to the previous fund.
Europe is 16.8%, with the UK making up 4.1% of that, and then it carries on like that with 10.7% allocation to emerging markets, and so on.
This fund is really going above board to give you exposure to so many different parts of the world such as China, Taiwan, Korea, Brazil, South Africa, and so on.
And when you look at the waiting by sector, again, technology dominates here at 21.3% allocation to technology, consumer discretionary of 15.8%.
Again, if you dig a bit deeper into the underlying companies, you have the usual suspects dominating the top 10 layers:
In summary, this fund is super diversified globally.
It gives you a broad range of exposure with more risk introduced into the portfolio with access to the emerging markets and smaller companies.
BEST VANGUARD FUNDS 4 – Vanguard U.S. Equity Index Fund Accumulation
This final fund to mention is one that we actually invest in for our children within their accounts.
The other reason I mentioned this fund if you're somebody who watches US personal finance channels, is that you no doubt would have heard the acronyms:
- VTSAX – Vanguard Total Stock Market Index Fund Admiral Shares
- VTI – Vanguard Total Stock Market Index Fund ETF).
The difference between them is that the VTI is the ETF equivalent of the VTSAX, which you might have heard about or read in books.
The UK equivalent of VTI is the Vanguard U.S Equity Index Fund Accumulation.
You can access the same funds that our US friends invest in, but you can do it here from the UK, and do it quite cheap as well.
This fund though is 99.6% US equity-focused. So pretty much 100%.
It tracks the performance of the Standard and Poor's Total Market Index.
What's super unique about that index is that it is comprised of large, medium-sized, small, and micro-companies in the USA.
It's made up of 3,746 stocks.
This fund is super cheap from a UK perspective, and it's currently costing only 0.1%.
It also packs a punch from a performance perspective!
That super low fee of 0.1% does the job of amplifying the performance of this particular fund.
I found it fascinating when I researched this fund and dug a bit deeper that it has not had a single year of being loss-making since its inception (2009).
Index Fund Performance
To invest in a fund like this which has 100% US equity exposure, you would need to combine a fund like this with something else.
Quite a lot of people simply back US equities markets strongly because they believe in the power of the US market to continue to deliver time and time again.
From a cumulative returns perspective, this fund has delivered an impressive 577.53%:
The picture below is for you to see what £10,000 lump-sum invested back then would look like today.
£10k from 2009 when this fund was launch, would be sitting at around £66,376 today, which is crazy impressive.
That's return is a Compounded Annual Growth Rate of 17.08% and implies that the investment doubled every 4 years and 4 months.
Extrapolating that, if you had £100,000 invested, you would be sitting at over £600,000 today.
Index Fund Allocation
From a sector perspective, there's a much larger allocation to technology companies.
You can see the information technology allocations 25.7% with health care coming next at 13.3%.
And then it carries on all the way to energy, utilities, and so on.
When you dive even deeper to look at the specific companies, you start to see companies such as Berkshire Hathaway, Apple, Microsoft, Facebook, Amazon Tesla.
Basically, all the massive US giants that we're all used to.
To learn how to invest your money confidently as a complete beginner within 12 days, check out our investing program Super Simple Investing.
Best Vanguard Funds UK: Conclusion
In summary, investing in a selection of them will most likely make you much wealthier over the next few years, provided you invest in them consistently every month for the long term.
They're suitable if you're somebody who has a higher risk tolerance (as they're all rated 5 out of 7 for risk).
In addition, they're suitable if your goal is to maximize your returns by having a much higher allocation to equities.
These funds represent a potentially good place to start for your journey towards financial independence but I'd highly suggest making sure that you have an allocation to bonds and cash from a protection perspective.
It's worth mentioning that Vanguard has a whole list of many other funds including the very popular Life Strategy funds, which are ready-made portfolios of equities and bonds.
To learn more about the life strategy funds and many other Vanguard funds, we've created a video called The Complete Guide to Vanguard funds.
If you're interested in Ethical or Socially Responsible Investing (SRI), then click here to learn how to research these funds and start investing.
What To Read Next:
Beyond these 4 best Vanguard funds, here other related blog posts on investing money wisely:
- How To Invest In Stocks With Confidence: Step-by-Step For Beginners
- What Is An ETF? A Complete Beginner’s Guide For Investing
- Compound Interest Calculator: Benefits and FREE Excel Calculator
- 10 Tips For Smarter Investing
- 9 Smart Ways To Invest £1000
- Why Saving Money Should Be Prioritised Over Investing
- Index Fund Investing and The Simple Path to Wealth
- How Index Trackers Work To Make You Rich
What To Watch Next:
I'd love to hear from you in the comments. What funds do you currently invest your money into on a monthly basis? Let me know in the comments below.
Charles Oben says
Great summary Ken, thanks for sharing! I’m with the FTSE Global All cap. As it’s a bit newer than some of the others, I wonder what the CAGR will be for all funds in 5 or 10 years or so. Obviously no one knows for sure.
Also didn’t know about the Vanguard U.S. Equity Index Fund Accumulation, so was interesting to read that.
The Humble Penny says
Cheers, Charles! Given the very good performance of these funds, it’s safe to assume lower average performance to be safe 🙂
Hi Ken ,very interesting reading your summaries.
What would be some of the best funds,for yearly income off say a £100k initial investment?
The Humble Penny says
Hi Howard, you want to invest in the dividend focused funds. Search “Dividend Aristocrats”. Vanguard also have a dividend income focused fund: https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-high-dividend-yield-ucits-etf-usd-distributing/overview
Great post, y’all! Hope you’ve been well this year. This specific post was very insightful, and I agree that learning certain aspects of wealth building is very beneficial for the future of anyone’s finances. 20% of first-generation millionaires grew up poor but found a way to build wealth for themselves. It can be difficult to amass wealth, especially if no one is sharing information about it or like you mentioned sharing reliable information of value. It’s really admirable when people realize they want better for themselves and do the work to get there.
The Humble Penny says
Absolutely! Thanks for reading 🙂