Vanguard Introduces New Target Funds

A Vanguard news release said it plans to add funds focusing on target retirement dates of 2010, 2020, 2030, 2040, and 2050.

The company asserted the new funds will complement its existing six target offerings. The Vanguard Target funds are broadly diversified “fund-of-funds” that gradually reduce stock exposure and increase bond exposure as the targeted retirement date approaches.

“Shareholders are attracted to the simplicity and convenience of having a professionally managed, diversified portfolio of stocks and bonds in a single fund,” Vanguard CEO John Brennan, said in the news release. “The introduction of five new funds will enable investors to select a fund that more closely matches their investment time horizon.”

Brennan also announced in the news release that the company is changing the Target Retirement Funds’ asset allocation models.

The existing funds’ current asset allocation path will now provide increased exposure to equities over a longer period of time. The result will be a larger equity allocation of roughly 10 to 20 percentage points, depending on the fund. For example, the Target Retirement 2035 Fund will change its equity allocation to 90% from its current 75%, according to Vanguard.

Also, Vanguard Emerging Markets Stock Index Fund will be added to each of the funds (representing roughly 1% to 2.5% of assets), further diversifying their exposure to international markets.

Vanguard European Stock Index Fund and Vanguard Pacific Stock Index Fund will be added to the Target Retirement 2005 and Income Funds. In aggregate, international stocks will represent 10% of the 2005 Fund and 6% of the Income Fund.

Using methodology developed by Vanguard’s Investment Counseling and Research Group, assets in Vanguard Target Retirement Funds are invested in a combination of the following Vanguard mutual funds:

• Vanguard Total Stock Market Index Fund,
• Vanguard European Stock Index Fund,
• Vanguard Pacific Stock Index Fund,
• Vanguard Emerging Market Stock Index Fund,
• Vanguard Total Bond Market Index Fund,
• Vanguard Inflation-Protected Securities Fund, and
• Vanguard Prime Money Market Fund.

The five new Target Retirement Funds, which will require a minimum initial investment of $3,000 for taxable and IRA accounts, are expected to have low expense ratios, Vanguard said.