401(k) plans have become one of the most popular retirement savings options in the marketplace today with over $4 trillion in assets overall. The combination of tax-deferred growth, large contribution limits and the potential for employer-matching contributions have made these plans ideal for those preparing for retirement.
Vanguard's investment products make ideal choices for retirement plans due to its wide array of ultra-low cost index and actively managed mutual funds. It should be no surprise that several Vanguard funds make the list of the most popular fund choices for 401(k) investors. Vanguard's entries on the list present an intriguing mix of actively and passively managed funds along with both equity and bond offerings.
Vanguard Institutional Index
The Vanguard Institutional Index Fund is the large-plan version of the company's popular 500 Index Fund. With an expense ratio of just 0.04%, this is one of the cheapest Standard & Poor's (S&P) 500 index funds available.
S&P 500 index funds make ideal core holdings in 401(k) accounts due to their broad diversification, exposure to the economy's biggest companies and low cost.
Vanguard Total Bond Market Index
The Vanguard Total Bond Market Index Fund is to the bond market what the 500 Index Fund is to equities. It provides broad exposure to all segments of the bond market, short-term, long-term, corporate and government issues, at a bare minimum expense ratio.
Vanguard Wellington
The Vanguard Wellington Fund is the most popular actively managed fund on this list and it has the benefit of sporting a stellar long-term track record.
The fund generally maintains an asset allocation of two-thirds equities and one-third fixed income. This fund, launched in 1929, has achieved Morningstar's highest five-star rating as of Oct. 30, 2015.
Vanguard 500 Index
The Vanguard 500 Index Fund is one of the original index mutual funds and remains one of the most popular among investors. Similar to the Vanguard Institutional Index Fund, this fund tracks the S&P 500 index, although it charges a slightly higher expense ratio due to the lower minimum balance requirement.
Vanguard PRIMECAP
The Vanguard PRIMECAP Fund is a little different from the other funds on this list. This fund is actually managed by PRIMECAP Management Company, but it is still administered by Vanguard.
The Vanguard PRIMECAP Fund is actively managed, and it is a slightly more aggressive investment choice. The fund invests primarily in mid- and large-cap stocks with higher growth potential.
Vanguard Extended Market Index
Whereas Vanguard's 500 Index Fund focuses on large-cap stocks, the Vanguard Extended Market Index Fund benchmarks to the S&P Completion Index and invests in a broad portfolio of small- and mid-cap stocks. The smaller company, higher growth nature of the companies in which this fund invests make it a higher-risk choice, as it typically excludes large companies from its portfolio.
Vanguard Target Retirement 2025
Target retirement date funds are investments that are geared towards individuals with specific retirement dates in mind, and they provide broadly diversified portfolios that automatically become more conservative as the target dates draw closer.
These funds have become increasingly popular among investors who don't want to spend a great deal of time managing their savings. With investors in the Vanguard Target Retirement 2025 Fund looking at retirement in roughly 10 years, it maintains an allocation of roughly two-thirds stocks and one-third bonds as of Oct. 31, 2015.
Vanguard Windsor II
The Vanguard Windsor II Fund is one of the company's longest-tenured funds, having launched in 1985. This fund looks to focus on large- and mid-cap stocks that pay dividends, especially those that the fund's managers feel are undervalued relative to the broad market.
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