The Vanguard Star Fund (VGSTX)

Many of my friends know that I truly enjoy living a frugal life, investing, and working toward financial independence.  Most of my friends, however, do not share the same passion for personal finance the way that I do.  They all like what money provides, but they are more focused on other interests.

Over the years, people have asked me to set up their work-sponsored 401K.  Others have asked for help setting up an IRA for them.  Some have even asked me if I would help their other friends or relatives with their investments.

I am not a financial professional.  When I help people, I do not receive any compensation.  I do it because I love investing and helping others.  Please read my Disclaimer page for more information about this.  I also do not work for Vanguard but do recommend Vanguard as the best company to invest with.

When people come to me with a large sum of money, they have more options.  Most Vanguard funds have a $3,000 minimum for investor shares.  If someone comes to me with between $3,000 to $5,500, I set them up in a Vanguard Target Date fund.  We select a fund based on their age and risk tolerance for their IRA.

Many of the people who I have helped did not have a large amount of money to start investing with.  Some of these people are artists, social workers, police officers, ministers, students, or other people with limited means.  Never the less, they did want to take responsibility and start investing for their future.

The one fund that I have always defaulted to for this population was The Vanguard Star Fund (VGSTX).  Looking back, I have helped at least 10 people or more by opening an IRA with this fund.  This is a good fund to start with because it only requires a minimum of $1,000 to invest in an IRA at Vanguard.

It is a balanced fund with a somewhat conservative asset allocation of about 60% invested in stocks and 40% invested in bonds/short-term reserves.  The Star Fund is a fund of funds.  It is made up of 11 different actively managed Vanguard funds. The Star Funds stock allocation is well diversified with both domestic and international equities.  Within the stock allocation, it has a mix of both growth and value funds.

Allocation to Underlying Funds (as of 6-25-2017)

Vanguard Windsor II Fund Investor Shares – 13.9%

Vanguard Long-Term Investment-Grade Fund Investor Shares – 12.5%

Vanguard GNMA Fund Investor Shares – 12.3%

Vanguard Short-Term Investment-Grade Fund Investor Shares – 12.3%

Vanguard International Growth Fund Investor Shares – 9.6%

Vanguard International Value Fund – 9.6%

Vanguard Windsor Fund Investor Shares – 7.5%

Vanguard U.S. Growth Fund Investor Shares – 6.3%

Vanguard Morgan Growth Fund Investor Shares – 6.2%

Vanguard PRIMECAP Fund Investor Shares – 6.1%

Vanguard Explorer Fund Investor Shares – 3.7%

I do not own this fund.  For my own portfolio, I rather index funds because of their low fees and tax efficacy.  The Star Funds does, however, have an expense ratio of only 0.32% compared to 0.86% of the average fund in this class.  The Vanguard Star Fund has a 4 out of 5-star rating on  The Star Fund was created for IRA accounts because it is not the most tax efficient fund that Vanguard offers.  An IRA is where I suggest people use this fund.

The Star Fund was launched in 1985.  It has historically performed well:

1-year return – 11.42%

3-year return – 5.54%

5-year return – 8.14%

10-year return – 5.93%

Since Inception on 3/29/1985 – 9.43%

Some people might feel this fund is too conservative for younger investors.  You are correct if you follow the approach that suggests holding your age in bonds or an even more aggressive approach.  In my opinion, the Vanguard Star Fund is a good place to start for investors with limited means and investing experience.  I am comfortable recommending the Star Fund to new investors as a fund to start within an IRA.  If they chose to have a more aggressive portfolio as they learn more about investing and risk, they can switch to a Vanguard Target Date Fund that better matches their risk tolerance once they save up over $3,000 in their IRA.

Please remember to check with a financial professional before you ever buy an investment.

4 thoughts on “The Vanguard Star Fund (VGSTX)

  1. Mustard Seed Money

    I’m a huge fan of passive index funds and love the Vanguard 500. I figure why try to beat the market and just let it ride. I’m young enough that I still have time if the market tanks and those dividends are wonderful when they drop in each quarter buying more and more shares for me. So I try not to get too fancy when it comes to investing for myself 🙂

    1. thefinancialjourneyman Post author

      I agree and follow a similar approach.

      This is a good fund for new investors who do not have enough ($3K) to buy a target fund or the S&P 500.

      After a new investor has truly established their risk tolerance and has more than $3 saved, they can exchange to a more aggressive allocation.

      As always, Thanks for the comment.

  2. Troy @ Bear Market

    I soleley invest in UPRO, the 3x etf for the S&P 500. 2x isn’t enough leverage, and 4x would be too much. Right now I’m sitting on cash and waiting to buy when the market makes a small correction


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