You can find plenty of recommendations on great funds for your portfolio before retirement, but what works once your saving is mostly complete and you’re drawing on the accounts? We asked several financial advisors for some fund recommendations for the retiree. Our experts mostly liked Vanguard funds, for their low cost and high performance, and cautioned that any of those named below should be part of a balanced portfolio catered to your specific financial situation. Also, as you research these names, remember that just because a fund performed well in the past doesn’t mean it will in the future. Most of these funds received Morningstar’s five-star rating. (For more, see Are Vanguard Funds Good for Your Portfolio? An Unbiased Review.)
Vanguard Wellesley Income Admiral Fund
Gage DeYoung, CFP and founder of Prudent Wealthcare, likes two Vanguard funds. The first is the Vanguard Wellesley Income Admiral Fund (VWIAX), which has about 60% of its assets allocated to bonds, 39.18% to U.S. stocks, and about 4% in non-U.S. stocks. The rest is in cash and other investments. This is an actively managed fund with a minimum investment of $50,000 and an expense ratio of only 0.16%.
Vanguard Wellesley Income Fund Investor Shares
If $50,000 is too high for you, DeYoung recommends checking out the Vanguard Wellesley Income Fund Investor Shares (VWINX). It’s mostly the same fund but has a minimum investment of only $3,000, with a slightly higher expense ratio of 0.23%. According to DeYoung, “Vanguard Wellesley does carry over a 35% weighting in equities currently. Vanguard Wellesley would be for a retiree who is not withdrawing more than 3% annually from it. If a client sought a greater withdrawal rate or was past the age of 80, I would probably be directing them to an equity weighting of 20% or less.”
Vanguard Equity Income Fund Investor Shares
Scott Stratton, CFP and president of Good Life Wealth Management, likes the Vanguard Equity Income Fund Investor Shares (VEIPX). The fund invests about 90% of its assets in domestic stocks and the rest in cash and non-U.S. stocks. This is an actively managed fund with an expense ratio of 0.27% and a minimum investment of $3,000.
Vanguard Wellington Fund Investor Shares
Most retirees will find that a 90% weighting toward stocks is too high, but they’re likely to have other funds to balance it out. Another of Stratton’s favorites is the Vanguard Wellington Fund Investor Shares (VWELX). The fund is a more balanced product, with about 65% in U.S. stocks, 33% in bonds, 10.5% in non-U.S. stocks, and the rest in cash and other investments. Also an actively managed fund, it has an expense ratio of 0.25%.
Stratton gives this caution to retirees: “Many retirees seek out a fund with the highest yield, but that’s often a mistake. Funds with the highest yield are often less diversified and higher risk than funds with a more average yield. In the long run, the highest yielding funds often underperform and frequently have larger losses in bear markets because they tend to be concentrated in just a few sectors.”
Dodge & Cox Stock Fund
The Dodge & Cox Stock Fund (DODGX) is another favorite of advisors. The fund invests 80% of its assets in U.S. stocks, 10.7% in non-U.S. stocks, and the rest in cash and other assets. Its expense ratio is noticeably higher, at 0.52%, and it has a minimum investment of $2,500, or $1,000 in an IRA. This is another fund that is weighted too highly in stocks for most retirees, but it works just fine in a balanced portfolio.
Vanguard PRIMECAP Fund Investor Shares
Finally, the Vanguard PRIMECAP Fund Investor Shares (VPMCX) invests 85% of its assets in U.S. stocks, 16% in non-U.S. stocks, and the rest in cash and other assets. It has an expense ratio of 0.40%, and its largest holdings are healthcare stocks. Again, use it alongside funds highly weighted toward bonds.
The Bottom Line
Remember that you shouldn’t go out and buy these funds because of our recommendation. Research the funds and then talk to a financial professional before buying in. In addition, because many of these funds are highly weighted in stocks, you should add these to a portfolio of other funds that might be more weighted toward bonds or safer investments. A financial advisor can help you properly weight your portfolio and avoid any overlap of investments in each fund. (For more, see What Do Financial Advisors Do?)