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Vanguard Target Retirement Series

Setting the standard.

When it comes to investing, straightforward and low costs have always been a tough combination to beat, and Vanguard’s target-date series sets the standard in both features. It continues to earn a Morningstar Analyst Rating of Silver for its single share class.

This series is emblematic of Vanguard. It features low-cost, broadly diversified index funds to gain efficient exposure to global stocks and bonds. It’s devoid of any tactical shifts, and any changes to the glide path or asset allocation are well vetted with a long-term mindset by the committee of senior Vanguard investors. The most recent significant change was in 2015 when the team increased the allocation to international stocks and bonds by 10 percentage points. The equity sleeve now has a strategic 60% U.S. and 40% non-U.S. stock split, while the bond sleeve has a 70% U.S. and 30% non-U.S. bond split. Although that change has been a headwind on the equity side since then, having more-diversified exposure should pay off over the multiple market cycles target-date funds are designed for.

The glide path starts with 90% equity exposure until 25 years to retirement and continues to decline until arriving at a 30% equity stake seven years after retirement. It stands out the most versus peers near and at retirement. Five years from retirement, the glide path has 59% equity exposure, 5 percentage points higher than the norm; and at retirement it has 50% in equities, 6 percentage points higher than the average peer, leaving investors more vulnerable to sudden market drops near the retirement date. This could make it harder for more-conservative investors to stick with the funds during rocky periods.

The series’ huge size—$1.05 trillion as of the end of 2022—does somewhat limit the ability to add new asset classes to the portfolio. To make rebalancing more efficient, the team has the leeway to use up to 2% of assets to buy equity index and interest-rate futures to help keep the desired asset-class exposures in place during market dislocations. It’s a smart move that should keep the series, and shareholders, on the right path to retirement.

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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