How To Choose Target Date Funds? (video)

– Posted in: Index Funds — overwhelming evidence

Not all target date funds are index funds, but the Vanguard Target Date Funds are, and this is important. They are a fund-of-funds, and unlike most others, they do not add an additional layer of costs on top of the already low index fund costs.

This video was produced by The Vanguard Group and was uploaded to their YouTube channel on May 31, 2013. I have created a summary and transcript to help you find spots that interest you and make the best use of your time.

Summary of video: How To Choose Target Date Funds?


Factors to consider:

  • First, determine when you might want to retire. (You best guess is a fine starting point.)
  • Next, consider the stocks/bonds ratio and whether you feel comfortable with the associated investment risk. (This is very difficult for beginners, but do try to understand how the ratio of stocks to bonds changes over time to gradually reduce risk.)
  • Finally, as always, consider costs!

Transcript of How To Choose Target Date Funds?


Christine:    Hello and welcome to Target-Date Now. I’m Christine Rogers-Raetsch. Vanguard target-date investments can help you stay broadly diversified. They also offer the convinience of automatically adjusting your asset mix of stocks and bonds over time. If you’re considering a Vanguard target-date for your portfolio, you still have some responsibilities, primarily, you have to choose one. For some pointers on how to choose a Vanguard target-date fund, let’s turn to Paul Manion from our Target-Date News Team. Paul, what can you tell us about choosing a target-date investment?

Paul:    There are a few factors to consider, Christine. Retirement plans at Vanguard tend to offer a variety of target-date investments, each with its own asset mix, which is how your money is divided among stocks and bonds. That ratio of stocks to bonds will self adjust to gradually become more conservative as you approach and enter retirement.

Christine:    Then, how do you choose the Vanguard target-date option that could be right for you?

Paul:    There are a lot of ways that you could go about it but a useful starting point could be to determine when you want to retire. You’ll notice that almost all of Vanguard’s target-date investments include a year in their names, Vanguard Target Retirement 2025 fund, Target Retirement 2030 fund, and so on. This year is the investment’s target-date. It represents the approximate time that an investor in that particular target date option would retire and leave the workforce. An investor who expects to retire sometime in the year 2045 might consider investing in the Target Retirement 2045 Fund.

Christine:    Okay. What if you think you’ll retire in 2031?

Paul:    Consider the Target Retirement 2030 Fund.

Christine:    Oh, all right. Determining when you think you’ll retire is a good place to start but that’s the only decision that you have to make or isn’t it?

Paul:    No, you should also look at the asset mix of the investment over its lifetime, including when it’s most conservative to make sure that it’s still right for you wherever you are in your investing life.

Christine:    What do you mean by that, Paul?

Paul:    Each Vanguard target-date investment contains a different mix of stocks and bonds that is designed to be appropriate for someone who will retire sometime around the year in the fund’s name, give or take a couple of years. However, if you plan to retire in 2045 but feel that the allocation of that fund is too aggressive for your risk tolerance, you might want to consider a target-date investment with a more conservative mix, like the Vanguard Target Retirement 2025 Fund.

Christine:    Okay. Those are two useful guidelines that you might want to consider in your search for a Vanguard target-date investment. Is there anything else?

Paul:    Other factors to consider are the investment’s risk level, expenses, and performance. They all play a part in determining the right target date investment for you.

Christine:    Okay, thank you, Paul. Very, very helpful guidance. You’ve been watching Target-Date Now. If you’ve got a question about a target-date investment or something you’ve seen on the show, or even if you have a topic that you’d like us to cover in a future episode, let us know at Vanguard.com/targetdatenow. I’m Christine Rogers-Raetsch. Thanks for watching.

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Footnotes and Credits for video: How To Choose Target Date Funds?

The video on this page is the best I’ve seen on this topic. It was produced by The Vanguard Group and they own the copyright. They have given me permission to embed this via YouTube on this educational website.

The Vanguard Group is the largest provider of mutual funds in the world. Of high interest: Vanguard is owned by the funds themselves and, as a result, is owned by the investors in the funds. Founder and former chairman John C. Bogle is credited with the creation of the first index fund available to individual investors, the popularization of index funds generally, and driving costs down across the mutual fund industry. [Ref: Wikipedia]

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