How Vanguard Target Date Retirement Funds Work
Vanguard Target Retirement Funds, a Target Date asset allocation option, are designed to take you through retirement.
The asset mix of each Portfolio is based on a target date. This is the expected year in which participants in a Portfolio plan to retire and no longer make contributions. A team of asset allocation professionals adjusts each Portfolios make-up over time to ensure a noticeable and steady shift from equities to fixed income in the years leading to retirement.
The Vanguard Target Retirement Funds are composed of passively managed funds and are managed to help retain your potential for growth, and aim to preserve the value of your assets at and after retirement.
As each Portfolio glides over time, its asset mix is adjusted. Looking at the image below:
- Designed to take you through retirement.
- Glidepath is designed to continue to generate income in the years after the retirement date.
- The most conservative point on the glide path occurs 7 years after the retirement date.
- Underlying portfolio is comprised of 100% index funds.
- Vanguards embedded diversification approach provides balance against the natural ups and downs in the market.
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What Distinguishes Vanguards Tdfs From The Competition
1. Were investor owned. Fund shareholders own the funds that own Vanguard, removing the conflict of interest when reporting to another party. We return value to our 30 million owners, not to an outside firm.
2. We designed our TDFs to help the greatest number of participants successfully reach their retirement goals. Our glide path optimizes asset allocation to balance risk and reward along their journey.
3. Vanguard Target Retirement Funds on average have performed in the top quartile among their peer group for 10-year returns.3
3 Vanguard and Morningstar, Inc., as of 6/30/2021. Our Target Retirement Funds with a 10-year track record or longer , on average, ranked in the top 25% among peer groups for 10-year returns through mid-2021. Vanguard Target Retirement Income Fund ranked 19% out of 111 peers 2015 Fund, 57% out of 69 2020 Fund, 16% out of 97 2025 Fund, 15% out of 131 2030 Fund, 21% out of 124 2035 Fund, 27% out of 126 2040 Fund, 28% out of 124 2045 Fund, 18% out of 125 2050 Fund, 19% out of 122 and 2055 Fund, 28% out of 84. The average ranking among the funds was 24.8%. Only competing funds with a 10-year history were included. Results will vary in other time periods.
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Why Is Vanguards Tdf Performance Wider Relative To Its Respective Composite Benchmarks
While index-based TDFs are constructed with index funds, they are not index funds themselves therefore, they are not managed like index funds. The benchmark implementation and rebalance policies for Vanguard Target Retirement Funds and Trusts seek to emphasize investor outcomesreducing costs, delivering the expected asset allocation experience, and increasing investor wealthover the optics of tightly tracking an uninvestable benchmark.
While other TDF strategies that rebalance monthly can give the appearance of tighter tracking to a benchmark, they also risk substantial variations from the target strategic asset allocation between rebalances. We rebalance our benchmark daily because we believe it provides the best representation of the glide path each day of the month.
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A Portfolio That Adjusts As Participants Careers Progress
At Voya, our glide path relative to peers has a higher equity allocation for younger participants to build wealth and a lower equity allocation for participants near and in retirement to reduce risk in those critical years. Younger participants can afford to take on more investment risk in exchange for greater potential returns. However, in the later years, participants are more vulnerable to a market downturn, particularly the day they retire.
The Portfolio may periodically deviate from the Target Allocation, generally within the range of +/- 10% relative to the current Target Allocation. The sub-adviser may determine to deviate by a wider margin in order to protect the Portfolio, achieve its investment objective, or to take advantage of particular opportunities. This chart is for illustrative purposes only and may not reflect the current allocations of the Voya Target Solution Trust Series. This illustration is intended to show how the Voya Target Solution Trust Series transitions over time.
Which Target Retirement Fund Fits Your Timeline
Use our table to find the fund that best fits you.
Fund name
*Vanguard Target Retirement Funds average expense ratio: 0.12%. Industry average expense ratio for comparable target-date funds: 0.55%. All averages are asset-weighted. Industry averages exclude Vanguard. Sources: Vanguard and Morningstar, Inc., as of December 31, 2020.
Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.
These fund suggestions are based on an estimated retirement age of approximately 65. Should you choose to retire significantly earlier or later, you may want to consider a fund with an asset allocation more appropriate to your particular situation.
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Investments in bonds are subject to interest rate, credit, and inflation risk.
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We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
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How Did Vanguard’s Tdfs Perform During 2020’s Market Volatility
They performed better than peer averages. An integral part of our TDF design is to deliver strong performance while limiting volatility during market drops. For instance, Vanguard Target Retirement Income Fundthe fund in the series where you want the most protection against volatilityoutperformed the Morningstar Target-Date Income Averages not just for 2020, but during the past four steep downturns.
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