Vanguard Target Retirement Funds | Vanguard (2024)

FAQs

How good are Vanguard Target Retirement Funds? ›

Vanguard Target Retirement 2060 Fund (VTTSX)

As you might expect from the low-cost fund leader, Vanguard Target Retirement Funds are cheap and straightforward. They hold Vanguard broad market stock and bond index funds, which many investors consider the best options available.

Your fund's investments automatically become more conservative as you approach and enter retirement. Just consider picking the date-specific fund that's closest to your expected retirement year. For example, if you think you are going to retire in 2038, you would consider selecting Vanguard Target Retirement 2040 Fund.

Target-date funds do not provide guaranteed income in retirement and can lose money if the stocks and bonds owned by the fund drop in value.

“Everyone's situation is different,” Lovison said, “but these funds might be suitable for the first $200,000-$300,000 of savings before shifting to a more personalized portfolio. Ultimately, choosing between a target-date fund and other investment options should align with your long-term goals and risk tolerance.”

The funds were designed to re-balance relative to your age, not relative to how the market is performing, so they're unlikely to optimize your returns. Some TDFs can also carry hefty fees that cut into your retirement savings.

Vanguard Target Retirement funds are inexpensive, diversified and designed to give you a good, but not guaranteed, investment outcome by some fixed date in the future. They do this by starting with a high equity allocation then dialling down risk by moving more money into bonds as the fund approaches its target date.

TDF basics

These funds often start out containing a higher percentage of stocks, which carry more risk but create growth. Then, they gradually shift to containing a higher percentage of bonds and other low-risk assets intended to preserve savings and create income.

They're even a smart move for people who are inclined to frequently change their fund allocation inside their 401(k). Studies have found that target-date funds help to keep people disciplined in their investment choices, which increases returns. Another positive is the trend toward lower fees.

Key takeaways. Fidelity's guideline: Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. Factors that will impact your personal savings goal include the age you plan to retire and the lifestyle you hope to have in retirement.

As you approach your target date, target-date funds move more of your money from stocks to bonds. However, this approach lowers your overall potential return, creating a drag on performance in exchange for relative safety.

What are two pros and two cons of using target-date funds to invest for retirement? ›

Target-date funds provide a simple way to save for retirement. They offer exposure to a variety of markets, active and passive management, and a selection of asset allocation. Despite their simplicity, investors who use target-date funds need to stay on top of asset allocation, fees, and investment risk.

Most target-date funds are named in five-year increments, so you would choose the provider with a fund named with the year nearest your planned retirement date.

Today 36 million people use target date funds.

Everyone knows that they should be saving for retirement, but figuring out how can be tricky. That's one reason why target date funds have proved to be so popular. These all–in–one funds offer investors a basket of low-cost, well-diversified stocks and bonds that correspond to their risk tolerance.

Target-date funds are structured to maximize the investor's returns by a specific date. Generally, the funds are designed to build gains in the early years by focusing on riskier growth stocks, then they aim to retain those gains by weighting towards safer, more conservative choices as the target date approaches.

An annual checkup of your total portfolio could spot such problems. Remember, the growing popularity of target-date funds doesn't mean they're foolproof: All investments carry risks, and target-date funds are no exception. But for many investors, the one-stop convenience makes target-date funds the right choice.

They're even a smart move for people who are inclined to frequently change their fund allocation inside their 401(k). Studies have found that target-date funds help to keep people disciplined in their investment choices, which increases returns. Another positive is the trend toward lower fees.

Because of their low cost structure and high quality, Vanguard funds are a great choice for retirement investing.