Vanguard Target Date Retirement Portfolio, Beware of the Giant

Vanguard target-date-portfolios

Vanguard target-date retirement portfolios can be built with 4 ETFs. They are exposed to between 40% and 90% equities. There are low-risk, medium-risk, and high-risk portfolios.

For the past 10 years, the Vanguard Target Retirement 2050 (35 years old) has returned 9.59% with a standard deviation of 15.68%. The dividend yield is 2.19. The 30-year return is 8.34%. Year to date the Vanguard Target Retirement 2050 (35 years old) has returned 4.54%.

What is the return of the Vanguard target-date retirement portfolios?

Below you can see the performance of the Vanguard target-date funds. Please note that we are not yet factoring in the target date glide path in our calculations.
NameAsset class countYear to dateReturn in 201910 year returnCAGR since 1989 (%)Risk levelExpense ratio
S&P 500111.4431.4613.52%10.5430.04%
Vanguard Target Retirement 2030 (55 year old)44.7921.548.43%8.0520.05%
Vanguard Target Retirement 2040 (45 year old)44.6124.329.31%8.2930.05%
Vanguard Target Retirement 2050 (35 year old)44.5425.219.59%8.3430.05%
Vanguard Target Retirement 2060 (25 year old)44.5225.229.58%8.3330.05%

How do you build the Vanguard target-date retirement portfolios with ETFs?

This is for the Vanguard Target Retirement 2050 (35 years old) as it looked like in 2018. Target-date fund change their asset allocation each year so please consult the prospectus to see the exact allocation
  • 54.00%  US Total Stock Market (VTI)
  • 35.90%  International All-World ex-US (VEU)
  • 7.10%    Total US Bond Market (BND)
  • 3.00%    Non-US Bonds (BNDX)

Who is Vanguard?

Vanguard is the fund management company founded by the supreme good guy of investing John C. Bogle. Vanguard has a unique governance structure that makes it so that Vanguard’s only mission is to look out for those who own shares of the mutual funds. John Bogle has structured Vanguard in such a way that the owners of shares are also the owners of Vanguard. The investors (owner) are all those people who own a Vanguard mutual fund or ETF. John Bogle calls it the only mutual mutual fund company. One of John Bogle’s best books is his Common Sense on Mutual Funds.

john-bogle-common-sense-on-mutual-funds

I recently completed a history of the Vanguard which was very good. It is called The Man in the Arena: Vanguard Founder John C. Bogle and His Lifelong Battle to Serve Investors First

man-in-the-arena-john-bogle-and-his-lifelong-battle-to-serve-investors

“The book is part tribute to Mr. Bogle, part history, and part investment wisdom. The breadth of the tributes extends beyond the finance world of managers and writers, to heavyweight economists, such as Paul Volcker, and all the way to a former resident of the White House, Bill Clinton. The history spans the time period from the founding of Vanguard and its unique mutual ownership to the launching of the first no-load mutual funds and index funds. I personally loved the poster that declared “Index funds are un-American.” https://www.youtube.com/watch?v=JiPHXDf0xUs

Description of Vanguard target-date retirement portfolios

The Vanguard target-date funds are made of other funds. They are funds of funds in other words. This is the standard and smart way of constructing a target-date fund. Many if not most other target-date funds are constructed this way, fx, Dimensional Fund Advisors, BlackRock, and Fidelity.
vanguard-target-date-retirement-glidepath
The glide path structure of Vanguard’s target-date retirement portfolios. Notice how the bond portion becomes increasingly larger as you move across (move to the right) the x-axis. This is the “glide path” effect. Source: Vanguard
They follow a standard glide path philosophy as do all other target-date portfolios. The closer you are to retirement age the greater the bond allocation will be. Bonds (fixed income) have a lower risk level than stocks (equities). The Vanguard target-date funds are giants within the target-date fund universe. A Morningstar survey from 2019 estimate that Vanguard accounts for 40% of all assets under management within the target-date retirement category. This category has $1.7 trillion under management as of 2019. Vanguard started offering the target date funds in 2006 just after the Pension Protection Act of 2006 was signed into legislation. This allowed target-date funds into 401(k) saving plans. The portfolios are made up of 4 funds. This makes them extremely easy to implement and maintain. They have massive diversification. The portfolios do not tilt their allocations towards any particular risk premia.

Asset Allocation for Vanguard target-date retirement portfolios

Vanguard Target Retirement 2030 (55 years old)

  • 42.20%  US Total Stock Market (VTI)
  • 28.00%  International All-World ex-US (VEU)
  • 20.90%  Total US Bond Market (BND)
  • 8.90%    Non-US Bonds (BNDX)

Vanguard Target Retirement 2040 (45 years old)

  • 51.20%  US Total Stock Market (VTI)
  • 33.90%  International All-World ex-US (VEU)
  • 10.50%  Total US Bond Market (BND)
  • 4.40%    Non-US Bonds (BNDX)

Vanguard Target Retirement 2050 (35 years old)

  • 54.00%  US Total Stock Market (VTI)
  • 35.90%  International All-World ex-US (VEU)
  • 7.10%    Total US Bond Market (BND)
  • 3.00%    Non-US Bonds (BNDX)

Vanguard Target Retirement 2060 (25 years old)

  • 53.90%  US Total Stock Market (VTI)
  • 36.10%  International All-World ex-US (VEU)
  • 7.10%    Total US Bond Market (BND)
  • 2.90%    Non-US Bonds (BNDX)
Disclaimer: These are target-date funds. By design, their asset allocation will change over time. In general, target-date funds shift more of their assets towards bonds as you age to lower your risk. This means that the asset allocation below will have changed until we update it here at portfolioeinstein.com.

How we select the right ETFs

There are a lot of ETFs out there. Most of them can be discarded because:

  • They are too expensive
  • They hold too few assets and are therefore too illiquid
  • They do not meet the criteria for representing the asset class they are supposed to mirror.

We have carefully selected an ETF for each asset class that the portfolios on portfolioeinstein.com use. If you want to read more about our selection process and see what we consider the best ETFs please visit our article What Is The Best ETF?

If you are a European investor you need to buy European ETFs. We list 47 best ETFs in our article What Are The Best ETFs For European Investors? (Here Is 47).

As of 2020 we also track socially responsible investing ESG portfolios. Socially responsible investing (ESG) portfolios prioritize investing that puts an emphasis on environmental, social and corporate governance issues.

You can find the socially responsible investing ESG ETFs in the same article.

Resources for Vanguard target-date retirement portfolios

It is always a pleasure to read any of John Bogle’s book so any book by him is recommended. These two are good starting points. Vanguard has a very helpful page for Vanguard’s target-date funds. Vanguard’s approach to target-date strategy can be found in their white paper. Vanguard’s youtube channel. You can compare different Target Date Funds in the article What Is The Best Target Date Fund? If you need a primer on target-date portfolios you should go read article Target Date Fund Portfolios.

Related questions

Which Vanguard Target Retirement Fund is best?

The best Vanguard Target Retirement Fund is the fund that has the approximate date for your retirments. If you intend to retire in 2060 then the best fund is 2060.

Which Vanguard fund has the highest return?

Accordig to Vanguard their Primecap fund has had an annual return of 13.41% since 1984. The Primecap fund is closed to new investors.

The Vanguard U.S Growth fund has had an annual return of 10.99%.

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