Thu, 5 May 2016
Our two Gold-rated series, the Vanguard Target Retirement series and the BlackRock LifePath Index series, share some similarities but have some important differences.
Morningstar currently assigns a Gold rating to only two series of target-date funds--the Vanguard Target Retirement series, and the BlackRock LifePath Index series. While these two series share some similarities, investors choosing between them should be aware of their differences.
Both series invest mainly in passively managed underlying strategies. This helps keep costs low. Both series have asset-weighted expense ratios lower than 0.20%, well below the typical peer's 0.73% expense ratio.
When comparing the two series' stock/bond split, the BlackRock series holds more in stocks for investors early in their careers. For instance, BlackRock's 2055 fund targets 99% stock exposure compared to 90% for Vanguard. While both series transition their portfolios into bonds, BlackRock still holds more in stocks than Vanguard until roughly 15 years before the target date. After that point until the target date, the Vanguard series actually has a heavier equity stake.
At the target date, the Vanguard series has a roughly an even 50/50 split between stocks and bonds, and continues to shift into bonds for seven more years until it has only 30% in stocks. BlackRock holds 40% in stocks at the target date—10 percentage points less than Vanguard—and stays at that mix throughout retirement.
Both these series' approaches have merit, but understanding the nuances between the two can help investors hone in on what strategy better fits their needs.