Best Vanguard Retirement Funds for a 401(k) Plan

Vanguard has changed retirement saving as we know it in many ways. But one of the lasting legacies that strikes truest with the average American is just how inexpensive they’ve made it to invest.

Under visionary founder Jack Bogle, Vanguard created the concept of the index fund—a product that by its nature allows for lower costs. Thirty years later, expenses have plummeted lower on funds across the board—though Vanguard remains a favorite in most types of retirement plans, including the ubiquitous 401(k).

Indeed, you’re likely to find a wealth of Vanguard options in your 401(k) and other retirement plans. And given that they’re typically competitive on both price and performance, they should be among the first funds you look at.

Today, I’m going to introduce you to a number of Vanguard retirement-focused mutual funds you’re likely to find in your 401(k) plan. To be clear: Your plan might not hold one, some, or all of these—if they don’t, you can always ask your plan sponsor to include them. You can also consider holding them in other tax-advantaged accounts, such as an IRA or HSA.

Disclaimer: This article does not constitute individualized investment advice. These securities appear for your consideration and not as personalized investment recommendations. Act at your own discretion.

What Should You Want in a Retirement Fund?

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When investing your retirement savings, you need to consider a few critical factors:

• Diversification: A robust retirement portfolio should hold multiple asset classes. This typically means stocks and bonds, though it can also mean alternatives such as real estate or commodities. Diversifying your retirement portfolio across these assets can help defray your risk and smooth your returns.
• Costs: Every dollar spent on fees and expenses is a dollar no longer available to grow and compound over time, so keeping expenses cut to the bone is vital. No worries in that department: The best Vanguard retirement funds’ fees typically sit near or at the bottom of their category.
• Taxes: A taxable account, such as a standard brokerage account, is better suited to take advantage of certain tax-advantaged investments, such as municipal bonds. For tax-advantaged accounts, such as 401(k)s, some of the best investments include bond funds (where the income interest won’t be taxed) and actively managed stock funds (where the capital gains distributions from heavy trading won’t be taxed).
• Income: You ideally want your retirement portfolio to produce regular income—in the form of both bond interest and dividend income. Stock prices can suffer during nasty corrections and bear markets, but income-generating funds can help provide for your living expenses without forcing you to sell at an inopportune time.

What Types of Funds Are Available in 401(k) Plans?

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Virtually every 401(k) plan is limited to mutual funds. While a handful of plans might offer exchange-traded funds (ETFs), they’re typically limited to mutual funds—and a handful, at that. Rather than a self-directed account, where you have your pick of virtually the entire mutual fund universe, 401(k)s only let you invest in, say, 10, 15, or 20 mutual funds, each of which cover a specific investing style.

Would it be nice to invest in ETFs, which typically offer lower costs? Sure. But mutual funds have certain qualities more befitting a 401(k).

For one, mutual funds don’t trade all day on an exchange, which discourages long-term investors from panic-selling during a particularly bad day in the market. They also allow for fractional share ownership, which is important given that 401(k) plan investors are typically allocating a fixed amount of money to their account every paycheck.

Also, rather than a self-directed account, where you have your pick of virtually the entire mutual fund universe, 401(k)s usually only let you select from between 10 and 20 mutual funds. Fortunately, each fund tends to cover a specific investing style, meaning you should be able to address most of your core needs with the options made available to you.

Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.

What Is a Mutual Fund?

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A mutual fund is an investment company that pools money from many investors to buy stocks, bonds or other securities. The investors get the benefits of professional management and certain economies of scale. A pool of potentially millions or even billions of dollars is large enough to diversify and might have access to investments that would be impractical for an individual investor to own.

Here’s an example: An investor wanting to mimic the S&P 500 Index (an index made up of 500 large, U.S.-listed companies) would generally have a hard time buying and managing a portfolio of 500 individual stocks, especially in the exact proportions of the S&P 500 Index. Another example: An investor wanting a diversified bond portfolio might have a hard time building one when individual bond issues can have minimum purchase sizes of thousands (or tens of thousands!) of dollars. 

Equity funds or bond funds will generally be a far more practical solution. 

To invest in a mutual fund, you’ll need to open an account with the fund sponsor or open a brokerage account with a broker that has a selling agreement in place with the fund sponsor. As a general rule, most large, popular mutual funds will be available at most brokers, so if you open a traditional investment account (like an IRA or brokerage), you’ll have access to most of the mutual funds you’d ever want to invest in.

Related: 7 Best Vanguard Retirement Funds [Start Saving Today]

Why Vanguard Mutual Funds?

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Vanguard Group is a leader in investment funds, boasting $8.7 trillion in assets under management.

Part of the allure is that across its 400-plus funds (which include mutual funds and ETFs), Vanguard charges an average expense ratio of just 0.08%, or a mere 80¢ for every $1,000 invested. The average asset-weighted expense ratio for U.S. mutual funds and ETFs is 0.44%, or $4.40 annually for every $1,000 invested.

In other words, Vanguard’s average fee is astoundingly low—even when a Vanguard fund isn’t the absolute cheapest in its category, it’s still going to be one of your most cost-efficient options.

Vanguard also grew into the powerhouse mutual fund company it is today by taking care of its clients and genuinely looking after their interests. Vanguard funds really started and continue to accelerate the trend of fee compression. But it’s not only the best Vanguard retirement funds that benefit. We all collectively pay less in fees and expenses and enjoy better returns because of the index revolution started and led by Vanguard’s founder Jack Bogle.

Related: The Best ETFs to Buy for a Prosperous 2025

The Best Vanguard Retirement Funds for a 401(k) in 2025

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With all that out of the way, let’s dig into some of the best Vanguard retirement funds to hold in a 401(k) to consider diving into this year.

These Vanguard retirement funds are ordered by their Morningstar Portfolio Risk Score for the trailing 10-year period. Here are the risk levels each score range represents: 

• 0-23: Conservative
• 24-47: Moderate
• 48-78: Aggressive
• 79-99: Very aggressive
• 100+: Extreme

Importantly, these scores are a general gauge of risk compared to all other investments. For example, a bond fund with a score of 20 might be considered a conservative strategy overall, but it could simultaneously be riskier than a number of other bond funds.

1. Vanguard Federal Money Market Fund

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• Style: Money market
• Management: Active
• Assets under management: $333.4 billion*
• SEC yield: 4.2%**
• Expense ratio: 0.11%, or $1.10 per year for every $1,000 invested
• Morningstar Portfolio Risk Score: N/A

In the current environment, it seems unlikely that interest rates will go higher, but it’s possible—and if that happens, higher-duration bond funds would experience capital losses. That was certainly the case in 2022, when very long-term bonds actually saw greater declines than common stock indexes like the S&P 500.

If you are looking for a competitive yield with essentially no duration or interest rate risk at all, the Vanguard Federal Money Market Fund (VMFXX) is a solid option and one of the very best Vanguard retirement funds at today’s prices. This income fund consists entirely of U.S. Treasury bills and other U.S. government obligations and repurchase agreements. 

Money market funds are somewhat unique among mutual funds in that they specifically target a net asset value of $1 per share. Any earnings that cause the net asset value to go higher than $1 get distributed as dividends. This means that, unless you reinvest your dividends, the value of your money market mutual fund will not grow over time. So even though VMFXX doesn’t have a listed Morningstar Portfolio Risk Score, it’s a fair assertion that this is one of the most conservative Vanguard funds you can own.

And as far as taxes are concerned: Money market funds are effectively bond funds, with interest income the predominant source of returns. Interest income is taxed as ordinary income, making bond funds (and money market funds) extremely tax-inefficient—if you’re in the 37% tax bracket, then you’re losing 37% of your bond interest to taxes! Put differently: It makes sense to hold bond and money market funds in a 401(k), IRA, HSA, or other tax-advantaged account.

Just remember that money market funds’ yields are very sensitive to Federal Reserve policy moves. Three years ago, money market funds in general offered virtually nothing in yield—but after the most aggressive string of rate hikes in history, VMFXX has become a legitimate income fund with a yield above 4%. However, VMFXX’s yield has started to decline alongside the Federal Reserve’s reduction in its benchmark interest rate. 

If the Fed cuts even more deeply into rates, you might want to re-evaluate your options. But until then, the Vanguard Federal Money Market Fund remains one of the very best Vanguard 401(k) funds for its low risk and competitive yield.

* Many Vanguard funds have multiple share classes, including ETFs. Listed net assets for Vanguard funds in this story refer to assets under management across all of a given fund’s share classes.

** SEC yield reflects the interest earned across the most recent 30-day period. This is a standard measure for funds holding bonds and preferred stocks.

Want to learn more about VMFXX? Check out the Vanguard provider site.

Related: 9 Best Fidelity Index Funds to Buy

2. Vanguard Total Bond Market Index Fund Admiral Shares

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• Style: Intermediate-term core bond
• Management: Index
• Assets under management: $342.4 billion
• SEC yield: 4.3%
• Expense ratio: 0.05%, or 50¢ per year for every $1,000 invested
• Morningstar Portfolio Risk Score: 20 (Conservative)

As an asset class, bond funds play an important role in lowering volatility and providing regular income. And within the world of Vanguard bond funds, the Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) stands out as one of the very best Vanguard retirement funds for its combination of competitive yield and rock-bottom fees and expenses. Indeed, with an expense ratio of just 0.05%, it’s all but free to own.

VBTLX provides broad exposure to the universe of bonds. A little less than half of its portfolio is Treasury or agency debt backed by the U.S. government, and another 20% is invested in government mortgage-backed securities (MBSes). Industrial-sector corporate bonds make up a little over 15%, banks and financial institutions make up 9%, and the rest is spread across foreign bonds, utilities, and commercial mortgage-backed securities (CMBSes).

One of the most critical metrics to consider when considering bond funds is duration, which is a measure of interest-rate sensitivity. As an example, a bond with a duration of two years would see its price rise by 2% if interest rates fell by 1% (or conversely, would see its price fall by 2% if interest rates rose by 1%). The actual calculation of duration is fairly complex; it’s the weighted average of the bond’s cash flows. But the key takeaway is that, all else equal, the longer a bond’s time to maturity, the higher its duration—and thus the higher the interest-rate risk.

The Vanguard Total Bond Market Index Fund, with a duration of 5.9 years, has a medium-term duration. That’s moderate interest-rate risk—if rates keep falling, VBTLX could struggle. But if the Federal Reserve largely stays put, investors will collect a 4%-plus yield with little issue.

Want to learn more about VBTLX? Check out the Vanguard provider site.

Related: 10 Best Fidelity Funds to Buy

3. Vanguard Wellington Fund Investor Shares

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• Style: Moderate allocation
• Management: Active
• Assets under management: $112.3 billion
• Dividend yield: 2.1%
• Expense ratio: 0.26%, or $2.60 per year for every $1,000 invested
• Morningstar Portfolio Risk Score: 46 (Moderate)

Vanguard’s oldest mutual fund, Vanguard Wellington Fund Investor Shares (VWELX) is a “portfolio in a can.” While stock funds allow you to hold hundreds or thousands of individual stocks, and bond funds allow you to hold hundreds or thousands of bonds, “balanced” or “allocation” funds like VWELX allow you to get all of that exposure in just one fund.

Vanguard Wellington, which came to life in 1929, is a moderate allocation fund that invests roughly two-thirds of its assets in stocks, and the other third in bonds. The stock portion of the portfolio currently holds about 70 predominantly large-cap stocks with a median market cap of over $250 billion—a “who’s who” of mega-cap blue-chip firms such as Apple (AAPL) and Microsoft (MSFT), with a little exposure to international names such as Unilever (UL) and AstraZeneca (AZN).

The bond portfolio is much more broadly diversified, at nearly 1,400 investment-grade issues. The majority of that (roughly two-thirds) is invested in corporate bonds, with another 22% in Treasuries and agency bonds, and the rest peppered across mortgage-backed securities (MBSes), foreign sovereign bonds, and other debt.

Vanguard Wellington, as the name suggests, is managed by Wellington Management, an investment management company with nearly a century of operational experience. And this one-stop shop for your large-cap stock and bond needs charges just 0.26% in annual expenses—very inexpensive for the skilled management and strong performance track record you’re getting in return. It’s also an excellent 401(k) recommendation for a pair of reasons: 

1. It’s among the most common Vanguard funds you’ll find in 401(k) plans.
2. Turnover (how much the fund tends to buy and sell holdings) is on the elevated side, with about 40% of the portfolio turning over every year, so it generates some capital gains distributions. It also produces a decent chunk of interest income from its bond portfolio. A 401(k) can help you avoid both sets of tax consequences.

Just make sure you’re considering your own investment needs with this fund. If you don’t want a third of your portfolio to be in bonds, you’ll want to put additional money into individual stocks, equity funds, and/or alternative investments.

Want to learn more about VWELX? Check out the Vanguard provider site.

4. Vanguard Target Retirement Funds

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• Style: Target-date
• Management: Active
• Expense ratio: 0.08%, or 80¢ per year for every $1,000 invested
• Morningstar Portfolio Risk Score: 20-60 (Conservative to Aggressive)

One of the challenges in retirement planning is getting the asset allocation right, or having an asset class mix that is appropriate for an investor at your age and stage of life. An ideal portfolio for a 20-year-old is likely going to be very different from that of a 40-year-old, and both those portfolios will be different from what’s ideal for a 60-year-old.

This is where Vanguard Target Retirement Funds can really add value. 

Target-date funds—also called life-cycle funds—are a type of mutual fund that are designed to change their asset allocation over time. Target-date funds start out invested heavily in stocks, then slowly reduce their stock exposure and replace it with bond exposure as they approach their target retirement date, following a glide path.

The target retirement dates are intended to be estimates; they don’t have to be super precise. Generally, most mutual fund families will create target-date funds in five-year increments (say, 2025, 2030, 2035, etc.).

And given the hyper-specific focus on retirement, target-date funds tend to be a mainstay of 401(k) plans.

Vanguard Target Retirement Funds hold varying blends of both U.S. and international stocks of various sizes, as well as U.S. and international bonds. They’re unsurprisingly dirt-cheap, at just 0.08% annually, and the entire series earns a respectable Silver Medalist rating from Morningstar.

Want to learn more about Vanguard Target Retirement Funds? Check out the Vanguard provider site.

Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.

5. Vanguard International Core Stock Fund Investor Shares

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• Style: International large-cap stock
• Management: Active
• Assets under management: $2.0 billion
• Dividend yield: 2.0%
• Expense ratio: 0.48%, or $4.80 per year for every $1,000 invested
• Morningstar Portfolio Risk Score: 72 (Aggressive)

U.S. markets have long been among the most productive in the world, and if you believe in the American economy’s ability to keep growing, that should remain the case. Still, most experts would tell you that it’s worth having at least some exposure to international stocks, and you can do that via funds such as the Vanguard International Core Stock Fund Investor Shares (VWICX).

VWICX, which is run by Wellington Management’s F. Halsey Morris and Anna Lunden, aims to hold between 350 and 400 stocks from across the globe (excluding the U.S.). They favor firms from more established countries, with firms from developed markets such as Japan and the U.K. making up roughly 75% of assets. But they also hold stocks from emerging markets such as China, India, and Taiwan.

The managers blend growth and value styles, but they generally lean heavily on large-cap stocks—the median market cap is close to $45 billion. In other words, this is a predominantly blue-chip portfolio of multinationals such as Taiwan Semiconductor (TSM), Swiss pharma name Novartis (NVS), and British oil-and-gas giant Shell (SHEL).

Also, as is common with developed-country funds, VWICX roughly 2% yield is higher than comparable U.S. funds.

Vanguard International Core Stock Fund also does more trading than any other fund on this list, with turnover sitting at 75% right now—which means on average, nearly three-quarters of the portfolio turns over each year. As that can result in capital gains distributions, VWICX is a great Vanguard retirement fund for a 401(k), but a little less so for taxable accounts.

Want to learn more about VWICX? Check out the Vanguard provider site.

Related: The 10 Best Vanguard Funds to Buy for the Everyday Investor

6. Vanguard 500 Index Fund Admiral Shares

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• Style: U.S. large-cap stock
• Management: Index
• Assets under management: $1.4 trillion
• Dividend yield: 1.2%
• Expense ratio: 0.04%, or 40¢ per year for every $1,000 invested
• Morningstar Portfolio Risk Score: 73 (Aggressive)

If we’re talking about tax consequences alone, a taxable account is much better positioned to take advantage of an index fund’s tax efficiency than a tax-advantaged account. However, given that a 401(k) is often an investor’s primary (and sometimes only) investing account, and given that performance is the ultimate goal, an S&P 500 index fund absolutely belongs in any 401(k).

Why? Well, the S&P 500 is hard to beat. Through mid-year 2024, “57% of all active large-cap U.S. equity funds underperformed the S&P 500,” says S&P Dow Jones Indices. That’s no anomaly: In 21 of the past 24 years, a majority of active fund managers that have tried to beat the S&P 500 have failed to do so.

So if you can’t beat it, join it.

The Vanguard 500 Index Fund Admiral Shares (VFIAX), by virtue of tracking the S&P 500, holds shares of 500 large U.S. companies. But it doesn’t hold them equally. The S&P 500 is “market-cap weighted,” which means the larger the company, the more weight the stock has in the index (and thus the more impact it has on returns). Thus, right now, VFIAX dedicates the largest portions of its assets to companies like Apple (AAPL), Nvidia (NVDA), and Microsoft (MSFT), whose market caps are measured in trillions of dollars. It’s also considered to be a “blend” fund, which means it has relatively even exposure to value stocks and growth stocks.

Turnover tends to be low, as only a handful of stocks enter or leave the index in any given year. So it typically makes little to no capital gains distributions. This makes VFIAX an extremely tax-efficient option for taxable accounts. But again, if you primarily invest through your 401(k) plan, and your goal is simply to maximize performance, there’s no good reason not to hold VFIAX in your 401(k). 

VFIAX is Vanguard’s oldest index strategy, and it remains one of the very best Vanguard retirement funds—for 401(k)s or wherever else you can stash it.

Want to learn more about VFIAX? Check out the Vanguard provider site.

Related: 7 Best Vanguard Dividend Funds [Low-Cost Income]

7. Vanguard Explorer Fund Investor Shares

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• Style: U.S. small-cap growth stock
• Management: Active
• Assets under management: $22.1 billion
• Dividend yield: 0.4%
• Expense ratio: 0.45%, or $4.50 per year for every $1,000 invested
• Morningstar Portfolio Risk Score: 81 (Very aggressive)

Vanguard Explorer Fund Investor Shares (VEXPX) is an actively managed mutual fund that invests in predominantly American small- and midsized stocks with growth potential.

VEXPX’s portfolio currently spans around 740 stocks with an average market cap of $7.1 billion—right around the midpoint of the mid-cap range ($2 billion to $10 billion), though the majority of its holdings fall into the small- ($500 million to $2 billion) and micro-cap ($500 million or less) ranges. Holdings right now include the likes of Texas tank barge operator Kirby Corp. (KEX) and mid-cap investment bank Houlihan Lokey (HLI).

While larger companies also have the potential for outsized growth, smaller companies, as a group, tend to be more explosive—for better or worse. They benefit from investing’s rule of large numbers (effectively, doubling your revenues from $1 million to $2 million is a lot easier than doing so from $1 billion to $2 billion). And when institutional investors become interested in these stocks, large influxes of new investment money can send their stocks skyward.

But they’re riskier. Smaller firms have fewer and narrow revenue streams, meaning if a core product line struggles, it can more easily lead to stock turbulence and losses. They also have less access to capital than larger companies, so if times get tight, it’s harder for them to survive.

Funds like VEXPX help defray that risk by allowing you to buy many smaller companies at once, so one stock’s failure doesn’t torpedo your portfolio’s worth. That risk is further reduced by Explorer’s management style—holdings are selected by five different investment advisors that manage independent subportfolios, allowing them to use their specialities to generate outsized returns while preventing any one manager’s strategy from upending the entire fund’s performance.

Turnover is elevated, too, at about 40%, but you can snuff out that liability by holding VEXPX in a 401(k) or other tax-advantaged account.

Want to learn more about VEXPX? Check out the Vanguard provider site.

Learn More About These and Other Funds With Morningstar Investor

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If you’re buying a fund you plan on holding for years (if not forever), you want to know you’re making the right selection. And Morningstar Investor can help you do that.

Morningstar Investor provides a wealth of information and comparable data points about mutual funds and ETFs—fees, risk, portfolio composition, performance, distributions, and more. Morningstar experts also provide detailed explanations and analysis of many of the funds the site covers.

With Morningstar Investor, you’ll enjoy a wealth of features, including Morningstar Portfolio X-Ray®, stock and fund watchlists, news and commentary, screeners, and more. And you can try it before you buy it. Right now, Morningstar Investor is offering a free seven-day trial. You can check out the current deal, as well as discounted rates for students and teachers, on Morningstar Investor’s website.

Related: 15 Best High-Yield Investments [Safe Options Right Now]

Vanguard Retirement Funds for 401(k)s: Frequently Asked Questions (FAQs)

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What is the minimum investment amount on Vanguard mutual funds?

Vanguard funds are known for being shareholder-friendly. It blazed new trails with the index fund, and Vanguard has done more than any other investment firm to keep costs to a minimum for investors.

There is one hitch. Many of Vanguard’s cheapest funds in terms of fees have initial investment minimums of around $3,000—and some can be even more.

But if you’re investing through a 401(k), don’t sweat it.

Funds don’t have minimum investment requirements when you buy them through a 401(k) plan. When you invest in a 401(k), you decide what percentage of your total contribution you want to allocate to each fund, and every time contributions are taken from your paycheck, the appropriate amount is parceled out.

However, if you’re considering investing in a Vanguard fund outside of a 401(k), note that many Vanguard index funds are also available as ETFs. Most brokers will allow you to buy as little as one share, and some even allow for fractional shares. And if you use a commission-free brokerage, you can buy those ETFs without incurring additional fees. ETF prices vary, of course, but many cost less than $100, and they rarely exceed $400 per share.

Related: 12 Best Investment Opportunities for Accredited Investors

What are index funds?

There are two kinds of funds: actively managed funds and index funds.

With an actively managed fund, one or more managers are in charge of selecting all of the fund’s holdings. They’ll likely have a specific strategy to adhere to, and they’ll be tasked with beating a benchmark index, but they’ll be given a lot of discretion about how to achieve that. These managers will identify opportunities, conduct research, and ultimately buy and sell a fund’s stocks, bonds, commodities, and so on.

An index fund, on the other hand, is effectively run by algorithm. The fund will attempt to track an index, which is just a group of assets that are selected by a series of rules. The S&P 500 and Dow Jones Industrial Average? Those are indexes with their own selection rules. Index funds that track these indexes will generally hold the same stocks, in the same proportions, giving you equal exposure and performance (minus fees) to those indexes.

If you guessed that it’s more expensive to pay a conference room full of fund managers than it is a computer that tracks an index, you’d be right. That’s why actively managed funds tend to cost much more in fees than index funds.

And that’s why ETFs are generally cheaper. Most (but not all) mutual funds are actively managed, while most (but not all) ETFs are index funds.

Why does a fund’s expense ratio matter so much?

Every dollar you pay in expenses is a dollar that comes directly out of your returns. So, it is absolutely in your best interests to keep your expense ratios to an absolute minimum.

The expense ratio is the percentage of your investment lost each year to management fees, trading expenses and other fund expenses. Because index funds are passively managed and don’t have large staffs of portfolio managers and analysts to pay, they tend to have some of the lowest expense ratios of all mutual funds.

This matters because every dollar not lost to expenses is a dollar that is available to grow and compound. And over an investing lifetime, even a half a percent can have a huge impact. If you invest just $1,000 in a fund generating 5% per year after fees, over a 30-year horizon, it will grow to $4,116. However, if you invested $1,000 in the same fund, but it had an additional 50 basis points in fees (so it only generated 4.5% per year in returns), it would grow to only $3,584 over the same period.

Related: 10 Monthly Dividend Stocks for Frequent, Regular Income