Index funds vs. actively managed funds
The choice comes down to how much risk you're willing to take for the possibility of higher performance.
Index mutual funds & ETFs
You have a chance to keep pace with market returns because index funds try to mirror certain market segments. But not all index funds are created equal.
Actively managed funds
Or you can try to beat market returns with investments hand-picked by professional money managers. You may be surprised by our active funds' performance.
Compare indexing & active management
Each strategy has a unique method for selecting its underlying investments. And each can complement the other when combined in a well-diversified, balanced portfolio.
Goal
Tries to match the performance of a specific market benchmark (or "index") as closely as possible.
Tries to outperform its benchmark.
Strategy
Uses the portfolio manager's deep research and expertise to hand-select stocks or bonds for the fund.
Risk
Aligns directly to the risks involved with the specific stock or bond market the fund tracks.
Adds the risk that the portfolio manager may underperform its benchmark.
Tax efficiency
Usually distributes fewer taxable capital gains because the portfolio manager trades less frequently.
Could have more taxable capital gains because the portfolio manager may trade more often, making it more tax-efficient to hold actively managed funds in IRAs.
Vanguard's proven track record for index & actively managed funds
Whatever your financial goals, you'll find that Vanguard investments deliver an enviable combination of quality and low costs.
Build your portfolio with our index mutual funds or tap into the expertise of the internal and external managers who oversee our actively managed mutual funds. You pay no transaction fees when you hold our funds in a Vanguard account, whether you trade online or by phone.*
Interested in Vanguard ETFs®? Most of our ETFs (exchange-traded funds) are indexed, and there are no commissions to buy or sell them in your Vanguard account. (Commission-free trading of Vanguard ETFs® applies to trades placed both online and by phone. Learn more about other conditions & costs that may apply.)
Competitive long-term performance
Overall, 87% of Vanguard mutual funds and ETFs performed better than their peer-group averages over the past 10 years.**
Low costs
The average Vanguard fund expense ratio is 83% less than the industry average.†
Explore all our funds for your investing needs
Our index funds
Choose from more than 100 Vanguard index funds representing nearly all U.S. and international stock and bond markets, as well as sector-specific market areas.
Our actively managed funds
Choose from 70 actively managed funds for the opportunity to beat the markets.
We're here to help
Have questions? Contact us
REFERENCE CONTENT
Market benchmark
An unmanaged group of bonds or stocks whose overall performance is used as a standard to measure investment performance.
Active management performance history
Over the past 15 years, only about 37% of active stock fund managers and 19% of active bond fund managers have outperformed their designated benchmarks.*
Active stock fund managers
37% outperformed benchmarks.
63% underperformed benchmarks.
Active bond fund managers
19% outperformed benchmarks.
81% underperformed benchmarks.
footnote*Sources: Vanguard calculations, using data from Lipper, a Thomson Reuters Company. Based on funds' excess returns relative to their prospectus benchmark for the 15-year period ended March 31, 2020. Only funds with a minimum 15-year history were included in the comparison. Results for other periods will vary.
ETF (exchange-traded fund)
ETFs—like mutual funds—are broadly diversified collections of individual stocks or bonds.
But while mutual funds are only priced at the end of each trading day, ETFs have real-time prices that change throughout the trading day.
Other conditions & costs that may apply
Commission-free trading of Vanguard ETFs applies to trades placed both online and by phone. All ETFs are subject to management fees and expenses; refer to each ETF's prospectus for more information. Account service fees may also apply. All ETF sales are subject to a securities transaction fee. See the Vanguard Brokerage Services commission and fee schedules for full details.
Stocks
Usually refers to common stock, which is an investment that represents part ownership, or equity, in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits.
Bonds
A loan made to a corporation, government, or government agency in exchange for regular interest payments. The bond issuer agrees to pay back the loan by a specific date.
Capital gains
An increase in the value of an investment over the initial purchase price. A capital gain is "unrealized" until the investment is sold, when it becomes a "realized" gain. Realized gains are taxable, but the tax burden is deferred if you hold the investment in an IRA or a 401(k).