Best Vanguard Target Retirement Funds
Vanguard target-date funds do the research, selection, and rebalancing of securities so investors don’t have to. The funds start with an allocation that favors stocks in the early years of an investor’s long-term time horizon. That means an allocation of approximately 90% stocks and 10% bonds.
As an investor progresses through their career, Vanguard gradually rebalances its target retirement fund’s asset allocation in favor of less risky securities, such as bonds and short-term reserves. Vanguard target retirement funds come with an average expense ratio of 0.08%. That’s 84% less than the industry average. Beginning in February 2015, Vanguard increased the international equity and fixed income allocations for its target retirement funds to provide investors with improved global diversification.
Vanguard Utilities Index Admiral Shares
This fund focuses on stocks in the utility sector, which tend to have high dividends. It mostly holds large-cap stocks of U.S. utility companies, such as Duke Energy Corporation and Southern Company .
The expense ratio for VUIAX is a low 0.10%. However, it is only offered in Vanguard’s “Admiral” share class, which has a minimum initial purchase of $100,000.
If you can’t afford to invest in VUIAX, you can try Vanguard’s utility ETF . Its symbol is VPU, and it has no minimum to invest.
Keep in mind that dividend mutual funds often pay high yields. But these funds also come with the risk that your investment may lose value instead.
Pros And Cons Of Target Date Funds
Investing in a target date fund has both advantages and disadvantages. The major benefits include:
- Simplicity: Most 401 plans only offer one target date fund . If you invest in a target date fund, you dont need anything else in your retirement portfolio.
- Automation: Target date funds automate the process of adjusting your asset allocation. You dont need to ever manually rebalance your portfolio if you invest in a target date fund.
The primary drawbacks to target date funds are:
- Lack of customization: Every investor in a target date fund has the same asset allocation, regardless of their individual risk tolerances or investing goals.
- Potentially high fees: With the expense ratios of many target date funds approaching 1%, the fees associated with target date funds can significantly lower your investment returns. While 1% might not sound like a lot, the nature of compound interest means that small annual fees can add up to substantial lost value for your portfolio over time.
- Lack of control: Investors in target date funds dont get to choose which specific securities the target date funds invest in.
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Best Vanguard Funds To Plan For Retirement
The Vanguard funds listed below are some of the best to consider as you begin to build out your retirement investment portfolio.
Important note: In addition to normal Investor Shares, Vanguard also offers Admiral Shares of its funds, which are a class of shares that come with lower expense ratios, ultimately reducing your cost of investing.
Admiral Shares of Vanguard funds are charged 41% less in fees than standard Investor Shares and a whopping 82% less than the industry average. To qualify for Admiral Shares with these low fees, youll need to have a minimum investment of $3,000 for most index funds, $10,000 for sector-specific index funds, and $50,000 for mutual funds.
Vanguard 500 Index Fund Admiral Shares
Founded in the year 2000, the Vanguard 500 Index Fund was the worlds first index fund created for individual investors. Offering the low fees that Vanguard has become known for, the fund provides diversified exposure to the U.S. equities market.
The VFIAX was designed to give investors an easy way to gain exposure to 500 of the largest companies in the United States. Because these are the largest companies in the U.S.. the holdings in the ETF span several industries. Their combined market capitalization represents about three-quarters of the entire U.S. market value.
With a focus on the provision of heavily diversified exposure to large-cap companies in the U.S., there will be some volatility as the market ebbs and flows.
Nonetheless, any strong retirement investment portfolio will have a portion of its asset allocation in large-cap stocks in the U.S. market, making it a perfect pick for those working toward a financially free retirement.
VFIAX Key Stats
The VFIAX comes with an incredibly low expense ratio, even when it comes to Vanguard, a fund provider thats known for industry-leading low fees. Moreover, the returns on the fund are hard to ignore.
- Expense Ratio: 0.04%
- Morningstar Return Rating: 4 out of 5
- Years Up Since Inception: 16
- Years Down Since Inception: 4
- Best Three-Year Total Return: 32.33%
- Worst Three-Year Total Return: Negative 8.36%
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Of The Top Vanguard Funds You Can Own
Vanguard pioneered index investing back in the 70s and is now one of the most respected brokers worldwide. Here are 17 of the top Vanguard funds available.
Robo-advisors like Betterment, though, choose low-cost ETFs managed by brokers with years and years of expertise.. The Total Bond Market ETF is a great choice if you want a broad mix of investment-grade bonds.. With a decent five-year average return and a super low expense ratio, this is a great fund to have in your portfolio.. If you want to invest in some huge companies, consider this fund.. It has the lowest expense ratio of any ETF that tracks the S& P 500, too.. Expense ratio: 0.05% 10-year average return: 7.98% 5-Year average return: 12.97% Available with Betterment. The Small-Cap ETF has a low expense ratio and a pretty nice balance of industry exposure.. Look at those returns.. Industrials is a pretty broad market.. So pretty much any type of industry where you can go out and spend your money, this fund has a company for it.. I think that everyone should have some exposure to real estate in their stock portfolio.
How Do Target Date Funds Work
Target date funds offer the simplicity of investing in one product and having the asset allocation change over time as you age.
This allows for a transition from more stocks to more fixed-income and cash-equivalent investments to match your recommended risk levels by age.
This transition, referred to as the glide path, can help investors who do not pay close attention to their retirement holdings across time.
An investor need only select the fund best-matched to their intended retirement date and hold the investment.
This results in better tax consequences and eases concern by not needing to worry about rebalancing, asset selection, or any other investing due diligence.
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Best Vanguard Funds For Long Term Investors
15 Best Vanguard Funds for Long Term Investors · Plain Finances
However, to invest in a vanguard mutual fund on our list you’ll need between $1,000 and $3,000 to get started.. For example, consider the performance of funds with a 9% average return before expenses:. Vanguard’s S& P 500 ETF invests in 500 of the largest companies in the US.. Fees are low with a 0.07% expense ratio.. Vanguards Total World Stock Index Fund gives investors access to stock markets both in the US and beyond.. Bond investing is tricky business but Vanguards Long-Term Bond Index Fund takes the guesswork out of investing in bonds while also keeping you well diversified.. Low management fees should help long-term performance.. Expect to find funds focused on bonds, US investments, and international investments.
Which Target Retirement Fund Fits Your Timeline
Use our table to find the fund that best fits you.
*Vanguard Target Retirement Funds average expense ratio: 0.11%. Industry average expense ratio for comparable target-date funds: 0.49%. All averages are asset-weighted. Industry averages exclude Vanguard. Sources: Vanguard and Morningstar, Inc., as of December 31, 2021.
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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Vanguard Target Retirement 2050 Fund
The Vanguard Target Retirement 2050 Fund is for investors who will retire between 2048 and 2052, and its minimum initial investment is $1,000.
The fund has had an average annual return of 8.56% since its inception on June 6, 2006. Its expense ratio is 0.15%, which is 67% lower than that of funds with similar holdings, according to Vanguard. The fund’s net assets total $24.6 billion, and about 90% of them are held in stocks, and 10% are held in bonds.
Since the Vanguard Target Retirement 2050 Fund primarily invests in equities or stocks, it carries a high degree of volatility and is considered aggressive. Therefore, it’s best suited for investors who can tolerate the potentially high volatility of the stock market, as well as long-term investors. Like the other Vanguard target-date funds, this one will also become more conservative over time as the allocation of its assets changes.
What Is A Good Expense Ratio For A Target
Each mutual fund charges its own expense ratio. In an ideal world, expense ratios would be as close to zero as possible. This way, you could keep more of your money. These funds do have expenses, though, so you should expect to pay a minimal expense ratio.
Some funds charge expense ratios of almost 1%. You should avoid these funds unless their performance more than makes up for the expense ratio. Vanguard offers low-cost target-date funds their expense ratio usually hovers around .10%. Vanguard also states the average expense ratio of similar funds generally falls at .60%.
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How Do Vanguard Target Retirement Funds Work
Target-date funds are mutual funds that automatically rebalance the portfolio as the years go by to meet specific goals. Vanguard’s target retirement funds allow investors to put their funds in a single investment without having to worry about their balance of stocks and bonds. As the target retirement date approaches, Vanguard automatically shifts the ratio away from equity and toward fixed-income investments.
Consider Investing In Target Date Funds With A Axos Self
- Available via desktop, Apple iOS and Android App on Google Play
- Best For: Self-directed investors currently banking with Axos
Axos Self-Directed Trading offers commission-free investing options, including mutual funds. Among these choices are several target date funds from providers like Vanguard, Fidelity, T. Rowe Price and more.
The advantage of investing with Axos SDT is the free trading outside of these companies securities and in other assets as well.
Holding an investment account with Vanguard allows for free trades of Vanguard funds, but comes with commissions for other stocks and bonds you trade. The same is true of T. Rowe Price.
Many options exist like index funds on Robinhood, or on the best Robinhood alternatives which offer free stocks for opening accounts, but Axos SDT provides access to a broader universe of investment options.
And with all investments, investors should consider the investment objectives, risks, and charges and expenses of a mutual fund or ETF carefully before investing.
About the Author
Riley Adams is a licensed CPA who works at Google as a Senior Financial Analyst overseeing advertising incentive programs for the companys largest advertising partners and agencies. Previously, he worked as a utility regulatory strategy analyst at Entergy Corporation for six years in New Orleans.
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Vanguard Total International Stock Market Index
Most investors will include international stock funds to build a complete long-term portfolio. VTIAX is one of the best Vanguard funds for this purpose.
VTIAX tracks an index that includes over 6,000 non-U.S. stocks. It includes both developed markets and emerging markets . Shareholders can gain exposure to the entire stock market outside the U.S. for a low expense ratio of just 0.11%. The minimum initial investment is $3,000.
Investors can also pick up the index at one-share costs, like Vanguard Total International Stock ETF , with a lower expense ratio of 0.08%.
How Are These Target Date Series Chosen
We think every target date fund series should be rated on sustainability. Our goal is to expand this database over the next year to cover all target date fund series offered by major asset managers. We started with these 12 because they are some of the largest and most commonly-owned target date funds on the market, with hundreds of billions in assets under management. Check back regularly to see if your target date fund series has been added to our database.
Want us to rate the target date fund series in your retirement plan? Get in touch with us
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Learn More About Target Retirement Funds
Informed by more than 4 decades of investment management expertise and behavioral research, the construction, management, and governance of Vanguard Target Retirement Funds represents Vanguards world-class thought leadership and investment capabilities. This family of funds is created in 5-year increments, with the 2070 fund being the newest in the lineup.
Choosing A Vanguard Target Retirement Fund
Note: Vanguard’s Investor Questionnaire is designed to assist investors with choosing an .
Target retirement funds are marketed for investors who want simplicity of managing their investments. These funds make assumptions about their potential investors one of which is , the single most important decision an investor has to make. They can not know the amount of willing to be undertaken by the individual investor.
When choosing a fund, the Bogleheads recommendation is to ignore the fund’s date. Instead, determine the amount of risk the investor is willing to tolerate and work backwards to find a fund that matches the chosen stock/bond allocation. The investor may be surprised to find a large discrepancy between the planned retirement date and the fund’s target date. Remember that the fund does not know the individual investor.
There are some disadvantages to this method , but the beginning investor should not be dissuaded. at a later time is always an option, especially if the fund is held in a tax-advantaged account.
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Are Target Date Funds Tax Efficient
When investing in mutual funds and target date funds, you purchase a security comprised of underlying assets .
When these underlying funds realize capital gains and/or dividends, these pass through annually to the shareholder, who pays the applicable tax.
For net capital gains , they come grouped into two buckets: long-term or short-term .
The IRS taxes both at the appropriate rates for the shareholder, and depending, could result in paying no tax.
For dividends, fund managers accumulate and distribute these to shareholders throughout the year.
Dividends receive ordinary income tax treatment unless they meet the requirements for qualified dividends.
These distributions represent one form of taxation on target date funds.
Investors can also transact by buying and selling the funds themselves, triggering another taxable event.
Commonly, target date funds are tax efficient in nature because they often require no transacting on your part to arrive at your asset allocation.
As a result, the target date investor faces fewer taxable events than an actively-managed portfolio.
However, because capital gains and dividends pass through to the investor regularly, if an investor holds these investments outside of a tax-advantaged account, this can trigger regular tax consequences.
In other words, if the investor transacts less often with target date funds than with active management, it can represent a more tax efficient investment.
The Top 10 Vanguard Funds On The Market
Should you buy into Vanguard mutual funds, or the provider’s ETFs? You don’t have to choose. These are the 10 best funds Vanguard offers.
Importantly, Vanguards success isnt just limited to one type of fund.. So today, were looking at 10 of the top Vanguard funds available right now in both mutual fund and ETF form.. Thats why investors have funneled a staggering $82 billion into VTI, plus hundreds of millions more into sister mutual funds including Vanguard Total Stock Market Index Fund Admiral Shares .. The Vanguard Selected Value Fund looks to provide a high total return via both dividends and capital appreciation from mid-cap stocks.. Type: Dividend growth Expenses: 0.08%. At $56 billion in assets, the Vanguard FTSE Emerging Markets ETF is the largest emerging-market stock ETF there is, and its also one of the best.. Type: Short-term bond Expenses: 0.07%. And despite having $18.7 billion in assets , Windsor holds a concentrated portfolio of just 140 stocks.
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Consider Vanguard Personal Advisor Services
If youre working on putting together your retirement investment portfolio, youve likely come across plenty of articles telling you where you should put your money. But you worked hard for that money, and you dont want to lose your hard-earned dollars.
If youre still unsure, relatively new to the market, or simply have questions about your portfolio that youd like an experts answers to, Vanguard Personal Advisor Services is worth consideration.
The service fee for assets Vanguard Personal Advisors manage for you is 0.30%, which is right in line with some low-cost passively-managed funds and lower than many actively managed mutual funds. In exchange, youll have expert support that will help you expand your wealth while limiting your tax burden.