The 5 Safest Vanguard Funds to Own in a Bear Market (2024)

Vanguard funds are known as practical tools for the buy-and-hold-forever crowd. Their straightforward strategies, broad portfolios, and generally low costs are conducive to investors who want to sit back and let compounding do the work for a decade or two. But in a pinch, the safest Vanguard funds can also be used to play a little defense – something investors could very well use in the current market environment.

The S&P 500 has been in bear-market territory since Jan. 3, 2022, giving it a little more longevity than the 330 days the typical bear market lasts. Depending on economic conditions this year – especially if the U.S. does fall into the recession that many experts predict – it could last well into 2023.

"The equity market is currently not a good value proposition unless you believe yields will decline dramatically and earnings will hold up, both of which are significantly unlikely," says José Torres, senior economist at Interactive Brokers. "The S&P 500 is likely to reach a low of around 3,100 as earnings per share (EPS) sink to $206 and the P/E drops to 15."

How we chose the safest Vanguard funds

To find the safest Vanguard exchange-traded funds (ETFs) and mutual funds for a bear market, we looked for those that represent some of the most useful defensive sectors and strategies, including those that contain the best dividend stocks or the best healthcare stocks.

We also targeted funds that boast Vanguard's below-average expenses. "True, some competitors can now match or even undercut Vanguard on fees for broad market exposure," writes Alec Lucas, director of manager research and active funds research for Morningstar. "But Vanguard's burgeoning advice business could help it keep or even extend that lead."

Just remember the rub when it comes to positioning your portfolio for a bear market: Bear markets eventually end. Indeed, in the same note, Torres says a potential Federal Reserve pivot could drive the market to finish in the black by the end of 2023. And as bear markets come to a close, defensive-minded investments can grind to a halt.

So if you do jump into the safest Vanguard funds for short-term defense, pay attention, and be nimble.

With that in mind, here are five of the safest Vanguard funds to own in a bear market. When applicable, we'll let you know when these portfolios come in both ETF and mutual fund form.

Data is as of May 8. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.