Meet Vanguard's Target-Date Funds

Target-date funds (TDFs) are the ultimate tool for anyone who wants to invest their money without all the work.

The typical investment fund will own a few hundred stocks or bonds for you. A "balanced" (or "allocation") fund goes one step further, owning stocks and bonds in some sort of preset proportion.

But a target-date fund goes an additional step further. It doesn't just own a set proportion of stocks and bonds. It starts with a set proportion that's appropriate for people at or around a certain age, then management adjusts that portfolio's proportion over time to have fewer stocks and more bonds as time progresses, reflecting people's needs as they get older.

Vanguard, like with many things, does this more cost-efficiently than just about anyone else.

Today, I want to introduce you to Vanguard's target-date funds—the Vanguard Target Retirement series.

What Is a Target-Date Fund?

Target-date funds are a type of allocation fund that has become popular in retirement planning over the past two decades. They go by different names, interchangeably called several things, including:

• lifecycle funds
• age-based funds
• dynamic-risk funds

The core concept is pretty simple: Target-date funds invest in a more aggressive portfolio of mostly equity funds to start, then gradually shift to a more conservative strategy, owning predominantly bond funds, as they approach a target date.

When you start investing, your target retirement date is really just going to be an estimate; you don't know what the world will throw you over the next few decades, so there's no need to be precise.

They're almost predominantly found as mutual funds, though iShares has a series of target-date ETFs. Fund families usually create target-date funds in five-year increments (say, 2025, 2030, 2035, etc.). The math behind picking one is simple enough.

Example

Let's say you turned 45 years old in 2025, and you expect to work until age 70. Your expected retirement date would be in the year 2050. So, investing in a target-date fund with a target retirement date of 2050 would be the most logical move.

What if your expected retirement age changes? No problem! Target-date funds are normal mutual funds and can be bought or sold as your needs change.

The target-date fund's allocation to equities will generally never go to zero. Retirees need growth, too, so you'll almost certainly have at least a little exposure to the stock market. The beauty of the target-date fund is that it changes your asset allocation to match your risk tolerance as you age—and it does it automatically without requiring you to actually do anything.

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Vanguard Target Retirement Funds

Vanguard's Target Retirement Funds are actively managed funds that are designed to guide people into and through retirement. "But you said they were built upon index funds?" They are—the managers own a handful of Vanguard index funds, in varying amounts, to get their exposure to different styles of stocks and bonds.

Since its founding in 1976, Vanguard mutual funds and ETFs have arguably done more to lower fees and to improve the overall investing experience for clients than any other company in history. This is the company that invented the low-expense-ratio index fund, and we continue to reap the rewards of that innovation today.

Vanguard's Target Retirement Funds generally allow for very low minimums of just $1,000 (compared to $3,000 for most of its other funds) and expense ratios of just 0.08% (which is about a fifth of the cost of a comparable fund from other providers).

Here's the lineup:

• Vanguard Target Retirement Income Fund (VTINX)
• Vanguard Target Retirement 2020 Fund (VTWNX)
• Vanguard Target Retirement 2025 Fund (VTTVX)
• Vanguard Target Retirement 2030 Fund (VTHRX)
• Vanguard Target Retirement 2035 Fund (VTTHX)
• Vanguard Target Retirement 2040 Fund (VFORX)
• Vanguard Target Retirement 2045 Fund (VTIVX)
• Vanguard Target Retirement 2050 Fund (VFIFX)
• Vanguard Target Retirement 2055 Fund (VFFVX)
• Vanguard Target Retirement 2060 Fund (VTTSX)
• Vanguard Target Retirement 2065 Fund (VLXVX)
• Vanguard Target Retirement 2070 Fund (VSVNX)

I won't break down every fund on this list, as the changes are small from one to the next. But I'll review a handful that are in very different stages of their asset allocation glidepath to give you a good sampling.

Vanguard Target Retirement 2030 Fund (VTHRX)

I'll start with the Vanguard Target Retirement 2030 Fund (VTHRX). Given that the target date is just a few years away, this fund is intended for someone who's very close to retirement. That said, VTHRX still has a healthy exposure to stocks, allocating nearly 60% of its portfolio to equities, and the remaining 40% to bonds and cash.

Again, Vanguard TDFs only own Vanguard index mutual funds to get the necessary stock-and-bond exposure. Right now, Vanguard Target Retirement 3030's largest holdings are the Vanguard Total Stock Market Index Fund Institutional Plus Shares (VSMPX, 35% of assets) and Vanguard Total Bond Market II Index Fund Investor Shares (VTBIX, 28%).

This brings up an important point about target-date funds in general: Vanguard's concept of what constitutes an appropriate portfolio for a person your age might or might not line up with your own preferences. You should always "look under the hood" to make sure you're comfortable with the level of equity exposure.

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Vanguard Target Retirement 2040 Fund (VFORX)

Next up is the Vanguard Target Retirement 2040 Fund (VFORX), which is designed for someone with about 15 years left until retirement, or roughly around 50 right now.

The 2040 fund is more aggressively allocated. Almost 75% of assets are invested in equities, and the rest is in bonds and cash. Like with VTHRX, the fund leans on VSMPX—which accounts for 44% of assets right now—to provide the bulk of its stock exposure. But VFORX also has a healthy 30% of assets invested in Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) for the foreign-equity portion of the portfolio.

Related: Retirement Plan Contribution Limits and Deadlines for 2026

Vanguard Target Retirement 2070 Fund (VLXVX)

For younger investors, let's move all the way out to the Vanguard Target Retirement 2070 Fund (VLXVX).

This fund is designed for a person looking to retire in 45 years, putting them in their early 20s today. As you might expect, it's aggressive. VLXVX invests 90% of its assets in stocks, with the Vanguard Total Stock Market Index Fund again leading the way at 53%, followed by the Vanguard Total International Stock Index Fund at 37%.

Related: The Best Dividend ETFs You Can Buy

Vanguard Target Retirement Income Fund

You'll notice that the Vanguard Target Retirement Income Fund (VTINX) is the only entry without a year attached to its name.

Like the other Target Retirement Funds, VTINX is a balanced fund (read: stocks and bonds)—currently, it offers a 30/70 split of stocks and bonds. However, unlike the target-date funds, VTINX doesn't change its allocation to meet a particular age's needs. Instead, it's a conservative fund designed for investors already in retirement who want to largely generate income with a little potential for capital appreciation.

Related: Beginner's Guide to Fidelity Target-Date Funds

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