The Vanguard Target Retirement 2045 Fund (VTIVX) is one of the Vanguard Group's well-known series of life-cycle funds, also known as target-date funds. Each of these funds targets a specific segment of the mutual fund investor market based on individuals' retirement windows.

This fund should grow with the typical investor's need to start with an equity focus and shift toward a more balanced approach when the investor reaches retirement age.

Key Takeaways

  • The Vanguard Target Retirement 2045 Fund is one of the Vanguard Group's target-date funds, geared and marketed toward investors who plan to retire between 2043 and 2047.
  • Like most life-cycle funds, the Vanguard Target Retirement 2045 Fund starts with a heavy equity exposure and slowly exchanges equities in favor of bonds as the fund approaches its set target date.
  • Vanguard's 2045 Retirement Fund is a fund of funds, meaning its portfolio is comprised of the shares of four other Vanguard index funds.

A Vanguard Company Overview

Vanguard is the premier name in low-cost passively managed mutual funds and exchange-traded funds (ETFs). Its passive S&P 500-tracking mutual fund, introduced in 1976, revolutionized the way investment companies approach pooled products. Still, relying on the guiding principles established by founder John Bogle, the company remains one of the more unique and trusted names in finance.

As of January 2020, Vanguard was the second-largest asset manager in the United States, after Blackrock, with more than $6.2 trillion in total assets under management (AUM). Structurally, the company is an odd private/public hybrid. As a privately held company, investors cannot directly purchase shares of the Vanguard Group. Instead, shareholders of its mutual funds are the actual owners of the company. An investment in a Vanguard fund thus doubles as a direct investment in the larger company.

Investment Management Team

Chief Investment Officer and Managing Director Gregory Davis is in charge of Vanguard's equity, quantitative equity, and fixed income groups. Davis joined the company in 1999 after working at Merrill Lynch as an associate in global debt markets. He earned a B.S. in insurance from The Pennsylvania State University and an M.B.A. in finance from The Wharton School of the University of Pennsylvania.

All Vanguard target-date funds are additionally managed by the Vanguard Equity Investment Group.

The Vanguard Target Retirement 2045 Fund Overview

Vanguard's Target Retirement 2045 Fund is suitable for investors who plan to retire between 2043 and 2047, and the company explicitly markets it to anyone who plans to retire in that time frame. The fund is large and cheap, with $27.3 billion in AUM and an expense ratio of 0.15%. Under Morningstar's style boxes, it ranks as a large blend with high credit quality and moderate interest rate sensitivity.

Vanguard touts the fund's "sophisticated portfolio construction methodologies and efficient trading strategies," although the fund really just tracks near a few well-known benchmarks. Its primary benchmark is the Target Retirement 2045 Composite Index, but it also closely tracks the Dow Jones US. Total Stock Market Index.

7.52%

The Vanguard Target Retirement 2045 Fund's pre-tax annualized return since its 2003 inception (as of May 31, 2020).

Investment Philosophy

Vanguard's philosophy is centered on low costs. All of its mutual funds are no-load and carry no 12b-1 fees, regardless of their portfolio or target investor base.  No commissions are paid out to brokers, financial advisors, or other Vanguard intermediaries. The company advertises its dedication to low fees as the only reliable way to control returns for shareholders.

Target-date funds are a major portion of Vanguard's product pool. The investment strategy is simple: Over the long term, equities outperform bond funds. However, short-run volatility tends to favor bonds. A target-date fund adjusts to these conflicting realities by starting with a lopsided equity exposure and slowly exchanging equities in favor of bonds as the fund approaches its set target date.

Portfolio and Selection Process

The Vanguard 2045 Retirement Fund is a fund of funds, meaning its portfolio is comprised of the shares of four other Vanguard index funds. As of May 2020, it consisted of approximately 90% stocks and 10% bonds, with a smattering of assets in cash or other instruments. Approximately 54% of its equity holdings were domestic and the rest were foreign.

Like all Vanguard target-date mutual funds, the Target Retirement 2045 Fund evolves and molds along a glide path, which is an illustration of the gradual shift from equities to bonds as the fund approaches de facto maturity. With 26 years remaining between 2018 and 2045, the Vanguard Target Retirement 2045 has a long enough window to remain equity-focused. By 2040, just five years until its target, the bond portion of the portfolio will climb past 40% of total assets.