Vanguard is one of the most prominent issuers of mutual funds and exchange-traded funds (ETFs) in the world. The private company introduced the first passive index fund tracking the S&P 500. Vanguard has since expanded its offerings dramatically. It also provides target-date retirement funds.

Vanguard is well known for its low-cost mutual funds and ETFs. Founder John Bogle purposefully kept the company private so it would be able to continue to keep expenses for its investors low. By not having to answer to shareholders, the company is able to keep the interests of its investors as its paramount priority. Vanguard has grown substantially as a company. It has around $3 trillion in assets under management (AUM) as of December 2014.

The Vanguard target retirement funds invest in the company’s broadest index funds. This means the funds are diversified among thousands of stock and bond holdings. They also include allocations to international equities and bonds. The portfolio managers for the funds gradually shift the allocations to become more conservative as they approach the target date. This is known as the glide path of the fund. This automatic rebalancing provides an easy way to approach portfolio management for investors who want a simple solution.

Target-date funds are designed to provide investors with a single solution for retirement savings. As their name suggests, the funds provide a target date for investment. They generally start out with a higher weighting toward equities, but then shift that allocation to bonds. This allows the target-date fund to shift toward a more risk-averse and income-producing portfolio as the investor reaches retirement. Portfolios with greater allocations to bonds are more conservative.

Vanguard Target Retirement Date Funds

Vanguard has a number of different target-date funds based on the approximate age of the investor. The funds are all managed by the Vanguard Equity Investment Group. For example, the Vanguard Target Retirement 2055 Fund (VFFVX) is designed for those who are between the ages of 23 and 27. The fund holds around 90% of its assets in equities with an allocation of 10% to bond holdings. It is designed to incrementally decrease exposure to equities and increase exposure to bonds as the target date approaches.

The fund has a reasonable expense ratio of 0.16%. Its holdings are other Vanguard index funds. The fund’s portfolio has an allocation of 54.1% to the Vanguard Total Market Index Fund. The next largest allocation is to the Vanguard Total International Stock Index Fund. For the bond holdings, the fund has an allocation of 7.1% to the Vanguard Total Bond Market II Index fund, followed by a weighting of 3.1% to the Vanguard Total International Bond Index Fund. The Vanguard Target Retirement 2055 Fund has net assets of $2.5 billion and a yield of 2.22% as of November 2015. It began trading in 2009, so it has a limited track record, and it has returned 10.98% since its inception. 

The Vanguard Target Retirement 2055 Fund can be compared to the Vanguard Target Retirement 2025 Fund (VTTVX). This fund holds 70% of its portfolio in equities and 30% in bonds. It has allocated 40% of its portfolio to the Vanguard Total Stock Market Index Fund and 26% to the Vanguard Total International Stock Fund. The bond portion has a weighting of 23% to the Vanguard Total Bond Market II, followed by around 10% to the Vanguard Total International Bond Index Fund. It has a similar expense ratio, 0.17%, to the 2055 Fund. The Vanguard Target Retirement 2025 Fund has $31.4 billion in assets with a yield of 2.00%. It has been trading since 2003, and, therefore, has a longer track record. 

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