The Vanguard Target Retirement 2055 Fund
The Vanguard Target Retirement 2055 Fund offers lifecycle asset allocation for investors with specific retirement dates. This fund is most attractive for investors who just started their careers and have over 40 years before retirement. As the fund is very far from its target date, 90% of its assets are allocated to domestic and international stocks. The remaining 10% of its assets are split between U.S. and international bonds. The fund is likely to stick to such aggressive allocation until 2030-2035 after that, it will start smoothly adjusting its allocation every year toward bonds.
The Vanguard Target Retirement 2055 Fund has an expense ratio of 0.15% and a four-star rating from Morningstar. This fund is most appropriate for investors who desire automatic asset rebalancing at a low cost and who are not planning to retire until between 2053 and 2057.
The Vanguard Target Retirement 2040 Fund
The Vanguard Target Retirement 2040 Fund offers a one-stop broadly diversified portfolio with a target date between 2038 and 2042. Like other Vanguard target-date funds, this fund invests in four Vanguard index funds with asset allocations of about 85% in equities and 15% in corporate and sovereign bonds.
About 50.20% of the fund’s assets are allocated to domestic equities, while 33% are dedicated to international equities. There is a 12% allocation in U.S. corporate and Treasury bonds and a 4.80% allocation of international bonds. As the fund is nearly 20 years away from its target date, it will continue allocating more assets to risky securities in the next five to 10 years.
The Vanguard Target Retirement 2040 Fund has an expense ratio of 0.14% and it has a four-star rating from Morningstar. Due to Vanguard’s larger emphasis on international bonds and international equities, the fund provides broader diversification and better return prospects in the long run, as overseas marketsespecially emerging marketstend to grow faster compared to developed markets.
The Vanguard Target Retirement 2040 Fund is most appropriate for investors whose target retirement is between 2038 and 2042 and would like to invest in one fund and not have to worry about rebalancing until their retirement.
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Best Vanguard Target Retirement Funds
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Deciding which mutual funds are appropriate for a retirement portfolio requires a good understanding of investment strategies. Vanguard target-date funds do the work of rebalancing over time so investors don’t have to. They start with an allocation favoring stocks in the early years of an investor’s life cycle, typically 90% stocks and 10% bonds.
As an investor approaches his retirement age, Vanguard gradually rebalances its asset allocation in favor of less risky securities, such as bonds and short-term reserves. Vanguard target-date funds come with an average expense ratio of 0.10%. The industry average expense ratio for comparable target-date funds is 0.60%. Beginning in February 2015, Vanguard increased the international equity and fixed income allocations for its target-date funds to provide investors with improved global diversification.
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.
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How Target Date Funds Work
Financial services firms manage families of target date funds, with individual versions for each year, past and future. Investors choose a fund that targets their anticipated year of retirement, and they may continue holding it until long after the target year has passed.
With target date funds, the term glide path describes how a funds asset allocation changes over time. All of the funds on this list utilize a through glide path, where the managers continue to adjust the balance of stock and bond funds after the designated target year. For some funds, the asset allocation changes end about five to seven years after the target date. For others, the changes continue for several decades.
For each target date fund in our evaluation, we focused on the 2060 version, suitable for someone looking to retire in about 40 years. In addition, we also evaluated the 2020 version, and some earlier versions, for insight on how the fund familys portfolio evolves as you enter retirement.
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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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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Notes & Data Providers
Stocks: Real-time U.S. stock quotes reflect trades reported through Nasdaq only comprehensive quotes and volume reflect trading in all markets and are delayed at least 15 minutes. International stock quotes are delayed as per exchange requirements. Fundamental company data and analyst estimates provided by FactSet. Copyright © FactSet Research Systems Inc. All rights reserved. Source: FactSet
Indexes: Index quotes may be real-time or delayed as per exchange requirements refer to time stamps for information on any delays. Source: FactSet
Data on U.S. Overview page represent trading in all U.S. markets and updates until 8 p.m. See Closing Diaries table for 4 p.m. closing data. Sources: FactSet, Dow Jones
Stock Movers: Gainers, decliners and most actives market activity tables are a combination of NYSE, Nasdaq, NYSE American and NYSE Arca listings. Sources: FactSet, Dow Jones
ETF Movers: Includes ETFs & ETNs with volume of at least 50,000. Sources: FactSet, Dow Jones
Bonds: Bond quotes are updated in real-time. Sources: FactSet, Tullett Prebon
Currencies: Currency quotes are updated in real-time. Sources: FactSet, Tullett Prebon
Cryptocurrencies: Cryptocurrency quotes are updated in real-time. Sources: CoinDesk , Kraken
Calendars and Economy: ‘Actual’ numbers are added to the table after economic reports are released. Source: Kantar Media
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The Vanguard Target Retirement 2025 Fund
The Vanguard Target Retirement 2025 Fund has a target date that ranges from 2021 to 2025. Because the fund is very close to its target date, its portfolio has a large number of bond holdings, which tend to be less risky when compared to stocks.
In particular, the fund invests in various Vanguard equity and bond funds, resulting in a 36.30% allocation to domestic stocks, a 24.20% allocation to international stocks, a 27.70% allocation to U.S. corporate and Treasury bonds, and an 11.80% allocation to international bonds. Domestic equity holdings of this fund are broadly diversified across the entire U.S. equity market.
Over the years, the Vanguard Target Retirement 2025 Fund, and Vanguard target-date funds, in general, tend to focus more on higher-quality bonds and Treasury inflation-protected securities compared to other fund families. This approach provides better protection of capital against volatility and real value erosion.
The Vanguard Target Retirement 2025 Fund has a four-star rating from Morningstar and an expense ratio of 0.13%. As the fund gets close to 2025, it plans to have higher asset allocation to bonds, in the realm of 50%. This fund is most appropriate for investors who are highly cost-conscious and plan to retire between 2023 and 2027.
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