What’s the difference between a load fund and a no-load fund? Does it affect my investment return?

Load funds charge a sales fee, or load. No-load funds, such as Vanguard funds, dont charge a sales fee.

Front-end loads are charged at the time of purchase and can be as high as 8.5% of your initial investment amount. For example, a front-end load of 4% would lop $4,000 off an investment of $100,000, so only $96,000 would be put to work for you. Some funds charge a back-end load, also known as a contingent deferred sales charge, which is applied when investors sell their shares. This load typically declines the longer shares are held and eventually disappears.

Both load and no-load funds may defray their marketing and distribution expensesincluding commissions paid to salespeoplethrough 12b-1 fees. These fees are included in fund operating expenses, which are deducted from a funds returns each year. You can find a funds 12b-1 fees by checking the fee table in a funds prospectus. Vanguard funds have no 12b-1 fees.

Because sales fees and expenses directly reduce net investment returns, its wise to pay attention to costs.

What is the difference between an actively managed fund and an index fund?

In an actively managed fund, a fund manager tries to outperform similar funds or an appropriate market benchmark. To do this, managers use research, market forecasts, and their own judgment and experience to buy and sell securities.

Index funds, sometimes called passively managed funds, don’t try to beat the market. Instead, managers of index funds seek to closely track the performance of a target market index. Index funds buy and hold all, or a representative sample, of the securities in the index.

Which kind of fund is betteran actively managed fund or an index fund?

Both actively managed funds and index funds can play a role in an investment portfolio. Some investors who seek to outpace the market favor actively managed funds. However, actively managed funds may also do worse than the market averageand they often do.

Index funds typically enjoy a bit of a head start compared with actively managed funds because their operating and transaction costs are usually very low. Also, reduced trading activity tends to make index funds more tax-efficient, because index funds typically generate smaller capital gains distributions than actively managed funds. (Capital gains distributions are subject to taxes when the investment is held in a taxable account.)

Vanguard believes you can run an effective investment program using only index funds. But we recognize that it sometimes makes sense to index a major portion of your investments and use active funds to make your portfolio more conservative or aggressive, or to provide more or less income. A good rule of thumb to pursue this core and more approach is to consider investing at least 50% of your long-term investments in broadly diversified index funds.

How does diversification lower my risk?

The returns of stocks, bonds, and cash investments usually don’t all rise or fall at the same time. When returns for one asset class fall, those of another asset class may be rising.

Diversificationthe simple concept of not putting all your eggs in one baskettakes advantage of this investment principle. When you diversify, you invest in different asset classesand even in different segments of those asset classes. In this way, if an investment in one asset class does poorly, the loss may be tempered by an investment in another asset class. Although diversification can never eliminate the risks of investing, it lowers your overall risk by spreading the risk around. Investing in mutual funds is a proven diversification strategy. By investing in a mutual funds array of assets, you reduce the risk that comes with owning any single stock or bond.

Though its important to diversify across the asset classes, you can also lower your risk by diversifying within asset classes. In stocks, for example, you can hold a fund that invests in all types of stocks, such as growth and value stocks as well as stocks of large, midsize, and small companies. For fixed income investments, consider buying both short-term and intermediate-term bond funds. Many investors further diversify by holding international stock funds or stocks of firms that own real estate.

Is it risky to have most or all of my investments with one mutual fund company?

Its smart to diversify among different types of investments, and often that means diversifying among mutual fund companies as well. But Vanguard knows many investors prefer the ease of relying on one fund company, so we make sure you can have that convenience at Vanguardand still enjoy wide diversification.

Vanguard features one of the largest selections of investments and related services in the industry. We offer more than 150 no-load stock, bond, balanced, and money market funds. And you can easily and cost-effectively invest in individual stocks, bonds, options, and thousands of other companies mutual funds through Vanguard Brokerage Services.

Whats more, our fund managers offer true diversity of investment approaches. Expert advisors across the United States and around the world run many of Vanguard’s actively managed funds. We select external fund managers for their particular expertise, and they operate independently from each other. We also monitor their portfolio management to ensure each fund remains true to its objective. This arrangement reduces the risk our investors will have overlapping strategies and holdings when they invest in several Vanguard funds.

In short, we believe investors can meet their needs and help enhance the security, integrity, and performance of their assets by consolidating with Vanguard.

Should I pay attention to independent fund ratings?

While it may seem convenient to choose your mutual funds based on favorable ratings from independent sources such as Morningstar or publications like Barron’s or Money. it isnt necessarily the best way.

Mutual fund ratings typically rely heavily on past performance. However, what the fund has done in the past is no indication of future results. Yesterdays big winners may become tomorrows big losers.

So while independent fund ratings can be helpful sources of general information about a fund, be cautious not to place greater emphasis on these ratings than on your answers to the following questions:

1. Does the fund fit my investment objectives?
2. What are the risks?
3. What fees and expenses does the fund have?
4. How long has the manager been with the fund?

Most important, read the fund’s prospectus so you’re comfortable with its investment policies, strategies, and risks.

How do mutual fund investors make money?

You can make money in 3 ways from stock and bond funds:

• Income returns from the fund. A fund must pay its investors the net bond interest or stock dividends the fund receives.
• Capital returns from the fund. When a funds profits from selling stocks or bonds are greater than its losses from selling securities, then it must distribute the net profits, called net capital gains, to investors.
• Capital returns from your selling of fund shares. A funds share price fluctuates with changes in the value of the stocks or bonds held by the fund. You can make money by selling fund shares for a higher price than you paid for them.

Money market funds provide only interest income. Because they seek to maintain a stable net asset value of $1 a share, they shouldn’t have capital gains or losses.

An investment in a money market mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market mutual fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in these funds.

What’s total return?

Total return is the percentage increase or decrease in the value of an investment over a specific period of time. It includes any income from the investment and any change in its market value. A mutual fund’s total return can help investors judge the fund’s performance and compare it with other funds.

For a mutual fund, total return includes:

• Income. A fund may produce income from investments in interest-bearing securities, such as bonds or money market instruments, or from dividends paid on stocks the fund owns. This income is periodically distributed to shareholders, who can generally choose to receive the distributions or have them reinvested in the fund.
• Capital change. A fund’s share pricealso called the net asset value, or NAVrises when the securities it owns rise in value. These price changes result in unrealized (paper) capital gains. Similarly, if the value of the fund’s portfolio declines, its share price will fall, leading to an unrealized capital loss. If a fund actually realizes capital gains from the purchase and sale of its securities, these gains are periodically distributed to shareholders. Shareholders can typically choose to receive capital gains distributions directly or have them reinvested in their accounts.

When total returns are calculated, it’s assumed that income and capital gains distributions are reinvested. Total returns are commonly quoted for time periods of 1 year, 5 years, and 10 years, or for newer funds, since the fund’s inception.

See our mutual fund list to check the total return for any Vanguard fund.

What are 7-day and 30-day yields?

Yield is a common measure of the income a mutual fund or other security produces. The U.S. Securities and Exchange Commission (SEC) prescribed in 1988 that all mutual funds quote their yields using standardized calculations so investors could make valid comparisons.

The 7-day yield is used only for money market funds. It consists of the dividend and interest income the fund pays over a 7-day period, net of expenses, expressed as an annualized percentage of the fund’s share price.

The 30-day yield is used for bond funds, balanced funds, and stock funds. It consists of the interest income the fund pays over a 30-day period, net of expenses, expressed as an annualized percentage of the fund’s share price.

Unlike total return, yield does not include capital gains distributions, which are earnings a fund passes on to shareholders when it sells securities at a profit. Also, a fund’s yield doesn’t reflect any fluctuation that may have occurred in the fund’s share price over a given time period.

See our mutual fund list to check the total return for any Vanguard fund.

An investment in a money market mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market mutual fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in these funds.

Why is my fund’s published return different from the return I earned on my fund account?

The performance numbers shown in public listings will almost certainly be different from the return you earned on your investment in the fund for several reasons.

Published performance figures assume a fixed sum is invested on the first day of a specific period (a quarter, a year, etc.), no money is added or subtracted, and all distributions are reinvested.

The real-life experience of most investors is different. Investors rarely make an initial investment on the first day of a specific period. They sometimes make regular purchases, sometimes sporadic ones. They sometimes sell shares, and they sometimes take distributions in cash or reinvest them in other funds. Those factors virtually ensure that your personal return will be different from the fund’s stated return.

As a quick exercise, take a look at your cash flow patterns in a fund to see how your contributions and withdrawals affected your returns. For example, buying additional shares when prices were lower probably boosted your investment’s performance, while selling shares during a downturn may have lowered the return you earned.

If you’re a Vanguard shareholder, be sure to register for our website so you can review your personal performance.

What is taxable-equivalent yield?

Taxable-equivalent yield is the before-tax yield you would have to get from a higher-paying but taxable investment to equal the yield from a tax-exempt investment. Taxable-equivalent yield depends on your tax bracket.

Consider this example:

A taxable bond yields 7%, and a tax-exempt bond yields 5%. Assume you’re in the 35% tax bracket. To determine the taxable-equivalent yield of the tax-exempt bond, use this formula:

Tax-exempt yield (100% your marginal tax rate) = taxable-equivalent yield.

Your calculation would be:

5% (100% 35%) = ?

5% 65% = ?

Convert the percentages to decimals and divide.

0.05 0.65 = 0.0769 = 7.69%.

In this example, the tax-exempt bond yielding 5% offers a better taxable-equivalent yield than the taxable bond whose before-tax yield is 7%.

What are Vanguard Admiral Shares?

Vanguard Admiral Shares were created to recognize and encourage the cost savings stemming from large investment accounts and to pass these savings on to the shareholders who generate them. If you have a Vanguard fund that meets the investment minimum for Admiral Shares, you can take advantage of the cost savings generated by this lower-expense share class. More than 60 Vanguard funds offer Admiral Shares.

To qualify for Admiral Shares, you must meet a minimum investment of:

• $10,000 or more in an index fund that offers Admiral Shares.
• $50,000 or more in an actively managed fund that offers Admiral Shares.
• $100,000 or more in certain sector index funds and tax-managed funds that offer Admiral Shares.

Admiral Shares have operating expenses that are considerably lower than traditional Vanguard fund shares (Investor-Shares). Over time, these savings could be significant for Admiral Shares investors.

You can combine some or all of the assets from several fund accounts and exchange them into a fund that offers Admiral Shares, but you should assess the impact of such a move on your asset allocation objectives.

Conversions to Admiral Shares from the same fund are tax-free. However, exchanges from Investor Shares to Admiral Shares of a different fund (in a nonretirement account) are taxable because it is considered a sale and could produce a capital gain.

If the balance in an Admiral Shares fund account drops below the minimum, Vanguard will notify you, and you will have the opportunity to add to the account to meet the minimum. If the balance remains below the minimum, the account will be reclassified to Investor class.

For specific information, contact us .

How do I convert my eligible shares to Admiral shares?

Follow the steps below to convert your eligible Vanguard Investor Shares to Vanguard Admiral Shares. (Note: Funds that meet the minimum investment amount for Admiral Shares are automatically converted on a quarterly basis.)

1. Log on to the website with your user name and password.
2. Click My Accounts and select Buy & sell .
3. Click Convert to Admiral Shares .
4. Choose Yes as your answer to: Do you want to convert to Admiral Shares now?
5. Select the fund you want to convert from your list of those eligible for Admiral Shares.
6. Follow the conversion instructions given.
7. Once the process is complete, record your confirmation number and print the page for your records.

To learn more about Admiral Shares, including how to become eligible, contact us .

What are Vanguard Exchange-Traded Funds (Vanguard ETFs)?

Vanguard ETFs are a share class of Vanguard index funds that trade on an exchange. They combine the benefits of indexing, such as low costs, with the trading flexibility and continuous pricing of individual stocks.

Conventional mutual fund shares are bought from and redeemed with the issuing fund at a net asset value (NAV) typically calculated once daily. Vanguard ETF Shares, by contrast, are bought and sold on the open market through a broker, such as Vanguard Brokerage Services, at market prices that change throughout the day. Your broker in most cases will charge you a commission to buy or sell Vanguard ETF Shares. You cannot buy Vanguard ETF Shares from or redeem them with the issuing fund, except if you are an authorized broker-dealer.

We expect that the market price of a Vanguard ETF Share will not vary significantly from its NAV under normal market conditions. However, it is possible for the 2 prices to differ substantially. Depending on prevailing market prices, you may pay more than NAV when buying and receive less than NAV when selling Vanguard ETF Shares.

For more information about Vanguard ETF Shares, including information on converting conventional shares to Vanguard ETF Shares, call 866-499-8473.

All investments are subject to risk. Investments in bonds are subject to interest rate, credit, and inflation risk.

Diversification does not ensure a profit or protect against a loss in a declining market.

Prices of small-cap stocks often fluctuate more than those of large-company stocks.

Foreign investing involves additional risks including currency fluctuations and political uncertainty.

The hypothetical illustration above does not represent the return on any particular investment.

Vanguard ETFs are not redeemable with an Applicant Fund other than in Creation Unit aggregations. Instead, investors must buy or sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor will incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.