Best 3 Vanguard Mutual Funds for Retirement

Vanguard offers target-date retirement funds to suit the needs of investors of various ages. A target-date fund is a mutual fund that automatically adjusts the asset mix over time and is appropriate for a particular type of investor. Vanguard target-date retirement funds provide investors with low-cost retirement vehicles that typically invest in other Vanguard index funds. Vanguard target retirement funds provide investors with instant diversification, and Vanguard continues to adjust them for about seven years after their target dates. These funds are beneficial for investors who wish to withdraw from their retirement fund over a period of many years after the target year.

Vanguard Target Retirement 2020 Fund

The Vanguard Target Retirement 2020 Fund was issued on June 7, 2006. As of Sept. 30, 2015, the fund has generated an average annual return of 5.59% since its inception. It charges a low annual net expense ratio of 0.16%. According to Vanguard, the fund's annual expense ratio is 68% less than the average expense ratio of target-date funds with similar investments.

The Vanguard Target Retirement 2020 Fund seeks to provide capital appreciation and current income. To achieve its investment objective, it invests in other Vanguard mutual funds based on a strategy designed for investors planning to retire in or around 2020. As of Sept. 30, 2015, the fund has total net assets of $26.7 billion.

It invests 35.8% of its portfolio in the Vanguard Total Stock Market Index Fund Investor Shares, 28.1% in the Vanguard Total Bond Market II Index Fund Investor Shares, 23.6% in the Vanguard Total International Stock Index Fund Investor Shares, 12% in the Vanguard Total International Bond Index Fund Investor Shares and 0.5% in the Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares.

As of Oct. 29, 2015, based on trailing three-year data, the fund has an average annual standard deviation, or volatility, of 6.18%, an average annual return of 6.74% and a Sharpe ratio of 1.08. On a risk-adjusted basis, the fund has historically provided investors with satisfactory returns.

The fund is best suited for investors planning to retire between 2018 and 2022. The fund currently allocates 59.4% of its assets to equities and 40.6% to bonds. This fund is suitable for moderately risk-tolerant investors seeking an investment in a retirement fund that automatically adjusts as the target date nears.

Vanguard Target Retirement 2030 Fund

The Vanguard Target Retirement 2030 Fund was issued on June 7, 2006 and has achieved an average annual return of 5.56% since its inception. The fund charges an expense ratio of 0.17%, which is 66% less than the average expense ratio of similar funds, according to Vanguard. The fund is designed for investors who wish to retire and leave the workforce in or around 2030.

The fund invests the majority of its assets in equities. As of Sept. 30, 2015, the fund invests 44.6% of its portfolio in the Vanguard Total Stock Market Index Fund Investor Shares, 29.8% in the Vanguard Total International Stock Index Fund Investor Shares, 18% in the Vanguard Total Bond Market II Index Fund Investor Shares and 7.6% in the Vanguard Total International Bond Index Fund Investor Shares. However, the fund will adjust its asset mix as its target date approaches.

Based on its modern portfolio theory (MPT) statistics, the fund is best suited for moderately to highly risk-tolerant investors with long-term investment horizons, who are seeking to retire between 2028 and 2032. This fund is best for retirement due to its adjustments in its risk profile from aggressive to conservative based on the target date.

Vanguard Target Retirement 2050 Fund

The Vanguard Target Retirement 2050 Fund is designed for investors who wish to retire in or around 2050. Since the fund's primarily invests in equities, it carries a high degree of volatility. The fund requires a minimum investment of $1,000, so it is suitable for the average investor with a long-term investment horizon. The fund charges an annual expense ratio of 0.18%, which is 63% less than the average expense ratio of similar mutual funds.

As of Sept. 30, 2015, the fund invests 54.1% of its portfolio in the Vanguard Total Stock Market Index Fund Investor Shares, 36% in the Vanguard International Stock Index Fund Investor Shares, 6.9% in the Vanguard Total Bond Market II Index Fund Investor Shares and 3% in the Vanguard Total International Bond Index Fund Investor Shares. The fund currently has total net assets of $7.9 billion.

Based on trailing five-year data, the fund has an average annual volatility of 11.22%, an average annual return of 9.18% and a Sharpe ratio of 0.84. Therefore, the fund is best suited for investors who can tolerate the potentially high volatility of the stock and bond markets. Moreover, it is best suited for investors who seek to leave the workforce and retire between 2048 and 2052.