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 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.
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 August 2018, Vanguard was the second-largest asset manager in the United States, after BlackRock, with more than $5.1 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. Therefore, an investment in a Vanguard fund 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.
Vanguard's Target Retirement 2045 Fund is suitable for investors who plan to retire between 2043 and 2047. The company explicitly markets it to anyone who plans to retire between 2043 and 2047. The fund is large and cheap, with $23.7 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.
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 lower fees as the only reliable way to control returns for shareholders.
Target-date funds are a major portion of Vanguard's product pool. The concept 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 trimming equities in favor of bonds as the fund approaches its set target date.
Portfolio and Selection Process
Vanguard's 2045 Retirement Fund is a fund of funds, meaning its portfolio is comprised of the shares of four other Vanguard index funds. As of August 2018, 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. Most foreign stocks come from developed countries such as Japan, the United Kingdom, France, Germany and Canada.
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 27 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.