Vanguard STAR Fund Review – A Balanced Fund with Less Risk
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It took me a long time to understand investing, and if I’m being honest, I still get overwhelmed sometimes! There’s always some new strategy to learn or trends to follow to ensure that you’re doing the best you can.
So, when it comes to getting started, it’s no wonder most people feel overwhelmed. Sure, you can hire an advisor to help manage your investments. But you might also wonder if it’s possible to be successful if you do it alone.
Fortunately, companies like Vanguard can help you access the tools you need to become a successful personal investor. This includes resources and products that offer diversity, including the Vanguard STAR Fund.
In this article
What is the Vanguard STAR Fund?
Vanguard STAR Fund Investor Shares (VGSTX) is a balanced fund designed to maximize long-term total return using a diversified fund-of-funds structure. This means that the investment fund invests in other types of funds, such as 10 Vanguard mutual funds.
The fund invests 60% of its assets in common stocks. Most of the fund’s stock holdings are diversified U.S. stocks, but there are a small number of diversified international stocks. The fund invests 40% in short-term and long-term investment-grade corporate bonds and GNMA mortgage-backed securities.
Since its inception in 1975, Vanguard has focused on its clients' investment needs. There are no outside owners of Vanguard because the company is owned by its member funds, which fund shareholders own. As such, its investors can access personalized financial advice, high-quality investments, and retirement tools. Vanguard’s current Portfolio Managers are Michael R. Roach, CFA, Walter Nejman, and Aurelie Denis, CFA.
The yearly investment returns of Vanguard STAR Fund in 2023 was 17.11%. The STAR Composite Benchmark Index’s total return in 2023 was 16.49%.
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How does the Vanguard STAR Fund work?
To start with the Vanguard STAR Fund, you must go through the website signup process.
When you open a new account, you need to choose how you’d like to fund it. You can transfer money into your bank account or from an investment account that you have with another firm. You can also roll over funds from an employer plan.
Vanguard even has preview videos that show the process of the bank transfer and investment account transfer options.
Next, you’ll move on to create your account and submit your application. You can set up your account from scratch if you've never used Vanguard. If you already have a login with Vanguard, you can log in to let the system prefill some of your information for you.
I’ve never created an account with Vanguard before, so I’m starting from scratch. Vanguard walks you through the process, which includes selecting your account type and submitting an online application.
As you can see, the first step is selecting the account type you want to open. You can also use the account-type selector if you need help deciding which account type is right for you.
You’ll also find some frequently asked questions on the side of the page. You can click the arrow next to these questions to see the answers.
After selecting the account type you want, you’ll move on to the application process. It starts with basic questions that you’d expect with almost any application.
Next, you’ll enter your address and phone number.
After this, you’ll have the chance to review the information you entered. If you entered something incorrectly, you can go back and edit it at this time. When that’s completed, you’ll be asked to upload a copy of a form of identification. This can be a driver’s license, state-issued ID, or passport. You’ll also need to submit information about what you are planning to use to fund your account. When the application is completed, Vanguard will take up to 5 days to review it. If your application is approved, your account will be opened, and Vanguard will transfer funds to your account.
How much does the Vanguard STAR Fund cost?
It’s free to open a Vanguard STAR Fund brokerage account. The only fee for holding an account is an annual service fee of $25. However, Vanguard will waive this fee if you sign up for the e-delivery of your documents.
As an investment account, there are other fees to be aware of. First, it’s important to know that you must meet the minimum investment of $1,000 to fund your account. With a Vanguard STAR Fund account, there are no fees for online trades of ETFs (exchange-traded funds), stocks, and most Vanguard mutual funds. Some other investments have commissions and fees, which can be a bit more complicated to understand. Vanguard has an entire commission and fee schedules page that details the types of investments and their associated fees.
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Vanguard STAR Fund features
Balanced fund
The Vanguard STAR Fund offers a balanced fund, which can be a good option for investors who want modest capital appreciation without taking high risks. These funds are hybrid, meaning they are diversified among at least two asset classes. In the case of this fund specifically, the asset allocation is broken up this way:
- 60% allocated to stocks
- 40% allocated to bonds
The Vanguard STAR Fund invests exclusively in other Vanguard mutual funds, such as the Vanguard Windsor Fund and Windsor II Fund. The fund is continually rebalanced to ensure your account stays on track to maximize your long-term total return.
Low-cost investing
The Vanguard STAR Fund comes with low fees, allowing you to maximize your investment account. No purchase, redemption, or other fees are charged with this fund. You can even waive the $25 annual service fee if you receive your documents electronically.
This fund's expense ratio is 0.31%, while the average expense ratio of similar funds is 0.82%, according to Vanguard.
Flexibility in how you invest
Vanguard offers a few ways for you to invest. You can use Vanguard to invest successfully by choosing your goals, accounts, and investments. Vanguard has tools to help you choose the right investments for your account.
If you want to use a robo-advisor, you can use Vanguard Digital Advisor. This option will build a customized portfolio and optimize your investments over time. Using Vanguard Personal Advisor Services, you can also connect with an advisor directly if you want guidance on your investments and overall financial picture. However, both services require a minimum account balance, and you’ll be charged for using the services.
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Who is the Vanguard STAR Fund best for?
Investors who don’t want to take on excessive risk
Any investment in the stock or bond market comes with a certain level of risk. Market conditions and your investment strategy can impact the level of risk. With a balanced fund like the Vanguard STAR Fund, you can try to avoid some of the major losses that can come with risks. For example, though your Fund’s stock holdings may be particularly volatile at some point, the hope is that the bond holdings might counteract some of that. This would, in turn, lessen the investment risk that you face.
Investors who don’t want to put forth a lot of money
Vanguard STAR Fund is a relatively inexpensive way to invest in a balanced fund compared to some competitors. You’ll benefit from some lower costs and fees as an online brokerage. On top of that, the minimum investment of $1,000 means that you can get started for a modest cost.
Who shouldn’t use the Vanguard STAR Fund?
Investors who want to be able to make adjustments over time
As a balanced fund, the Vanguard STAR Fund can be a good option for people with a diverse profile that can help lessen their investment risk. However, investors should consider the period of life that they’re in when deciding whether this fund is the right choice. Young investors might want to have a more aggressive portfolio as they’re starting out in their careers. But those in the later seasons might find this fund too aggressive for their liking. If you want to be able to make adjustments to lower your risk as you go, a life-cycle fund may be a better option.
Pros and cons
Pros
- There are no fees involved with applying for and opening a Vanguard STAR Fund account.
- Annual account maintenance fees are low at just $25, and even those can be waived if you opt to receive electronic versions of your documents.
- As a balanced fund, the Vanguard STAR Fund can help mitigate risks by investing in both the stock and bond markets.
Cons
- Vanguard doesn’t allow you to buy fractional shares of a stock.
- Vanguard’s trading platform is not as robust as those of its competitors, making it a poor option for people who want to get more involved with trading.
- You can’t use a Vanguard STAR Fund as a life-cycle fund.
Vanguard STAR Fund vs. competitors
Fund | Asset Allocation | Minimum Investment | Expense Ratio | Morningstar Rating |
Vanguard STAR Fund (VGSTX) | 60% stocks, 40% bonds | $1,000 | 0.31% | 3 stars |
Fidelity Balanced (FBALX) | 60% stocks and other international equity securities, 40% bonds and cash | $0 | 0.47% | 5 stars |
T. Rowe Price Personal Strategies Income (PRSIX) | 40% stocks, 55% bonds, 5% alternative investments | $2,500 | 0.60% | 2 stars |
Fidelity Balanced (FBALX)
Fidelity Balanced is a balanced fund with the investment objectives of income and capital gains consistent with a reasonable amount of risk. The expenses associated with this fund are relatively low, and the risk category is about the same as the Vanguard STAR Fund.
This fund's strategy is closer to a 50/50 split than some other balanced funds. Approximately 60% of assets are invested in stocks and other equity securities, while the remaining assets are invested in bonds and other debt securities. The fund invests at least 25% of total assets in fixed-income senior securities, including debt and preferred stock.
Compared to others, one of the biggest benefits of this fund might be that it has no minimum investment. Because of this, the Fidelity Balanced Fund can offer a good entry point for new investors.
T. Rowe Price Personal Strategies Income (PRSIX)
T. Rowe Price Personal Strategies Income is a balanced fund that prioritizes income and capital growth in that order. There are no transaction fees to be aware of with this fund, and the risk level is similar to that of other balanced funds. The biggest thing to be aware of is that the minimum investment to open an account is $2,500.
The strategy of this fund is to invest in a diversified portfolio that can be rebalanced as needed. Typically, about 40% of assets are invested in stocks. Bonds, money market securities, and cash reserves typically have 55% of assets allocated to them. The other 5% can be invested in alternative investments, such as hedge funds.
The fund manager can rebalance an account's investment mix as needed and within defined ranges. Any rebalancing is based on the economic outlook, financial markets, and interest rates. Up to 40% of the account’s total assets can be invested in foreign stocks and bonds, making this fund a good option for investors who want to invest internationally.
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FAQs
How do I pick the right investment account for my needs?
When choosing an investment account, it’s important to consider your long-term goals. This can help inform the level of risk that you’re willing to take as well as your timeline. Once you’ve figured that out, you can start thinking about your investment strategy. This is where you’ll want to consider the volatility of the market as well as the past performance of the investments that you are considering. There are some other things you might want to consider as well if you’re picking out your investments. You may want to consider growth stocks, which are stocks that offer a substantially higher growth rate when compared to the average current growth. You can also look at the market index to see which stocks or industries are performing best.
What other investments does Vanguard offer?
There are numerous ways that you can invest using Vanguard as your asset manager. There are over 200 mutual funds alone to choose from. This includes money market funds, U.S. bond funds, U.S.stock funds, international bond funds, international stock funds, sector & specialty funds and other balanced funds.
What is the Morningstar Rating?
The Morningstar Rating is a 1 through 5 star rating based on a fund’s risk-adjusted return when compared to similar funds. The ratings are objective and purely based on mathematical calculations.
What is an index fund?
An index fund is a type of mutual fund or ETF with a portfolio that is made to match or track their benchmark index. They’re typically used for retirement accounts such as IRAs and 401(k)s.
The bottom line
Investing can be confusing, but there are some products out there that can make it a little bit easier for you. When choosing an investment account, it’s important to consider your goals, fund performance, and ideal risk level. If you’re looking for a balanced fund with a modest risk, Vanguard’s STAR Fund might be right.
The Vanguard STAR Fund is free to set up, and you can receive a decision within five days after submitting your application. You only need a minimum investment of $1,000 to fund the account, and you can fund it using your bank account or another investment account. The fees associated with this fund are lower than balanced funds from some of Vanguard’s competitors.
If you’re trying to decide whether the Vanguard STAR Fund is for you, there are some things to consider. First, consider your timeline — do you have 40 years before retiring, or are you looking at a shorter time frame? This can help you decide how aggressive you want your investment strategy to be and how much risk you can handle. The Vanguard STAR Fund is a great product and is considered a good buy by most, but that doesn’t mean it’s right for every investor.
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Ashley Hart is a lead copywriter and digital marketing expert covering finance, law, real estate, music, entertainment, health and wellness.
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