How to Invest in Vanguard Index Funds

The Vanguard Fund Group has been a revolutionary force in the financial services industry, bringing to market the first market index fund, among others. Since then, they have lived up to their moniker as trailblazers in the mutual fund arena, trumpeting the value of low-cost, passive index investing. Investors have voted with their wallets by making the Vanguard Funds hundreds-of-billions of dollars.

Construct an asset allocation before you begin selecting individual funds. Consider your investment time horizon, how well you handle volatility and what kind of results you expect from your investments. For example, if you are investing funds you will need in one year, you want to construct a much more conservative portfolio than an investor who is planning for retirement 30 years down the road. Similarly, if your investment goal is to generate large capital gains, the core of your allocation should be in equities, rather than shorter-term income investments such as Certificates of Deposit.

Research the Vanguard funds. Vanguard is a large enough fund company to have an index fund for almost any market segment, sometimes even more than one. Their website is an excellent source of information on the specifics of all of their funds, including such important factors as investment objective, long-term performance history and annual expenses. Once you have your asset allocation constructed, narrow down the list of available Vanguard funds to ones that are specifically aligned with your investment plan.

Call Vanguard or open an account online and buy the index funds you have selected. Verify you are purchasing the correct index funds in the correct amount, and pay for your trades. Check your confirmations to ensure that your transactions were executed, as you desired.

Monitor your investments. Make sure your funds are performing as you expect and be aware of any changes in the underlying indices that might result in changes in the funds you own. For example, if a company whose stock you want to own is dropped out of an index, you might want to sell the fund you currently own and purchase a new one that contains the stock you like. Take advantage of the low fees and exchange features available through Vanguard to make changes in your portfolio as conditions warrant.