Feeling old? You should. With a goal of targeting the youngest millennial workers, investing giant Vanguard will introduce the Vanguard Target Retirement 2065 Fund, “a low-cost, fully-diversified option to begin saving for retirement as they enter the workforce.”
The Valley Forge, Pennsylvania-based firm notes that, according to Morningstar, target-date strategies have grown dramatically from $116 billion to $763 billion in the past 10 years, particularly in the institutional defined contribution (DC) market.
“As DC plans evolved over the past 30 years, it became clear that many workers often lack the time, willingness, or ability to be their own investment manager,” Martha King, managing director of Vanguard’s Institutional Investor Group, said in a statement. “Moreover, retirement savers need guidance on asset allocation in an increasingly challenging and complex market environment.”
The 2065 option will be available to individual investors with a $1,000 minimum initial investment, and to institutional investors with a $100 million minimum investment. Both funds are expected to carry extremely low expense ratios of approximately 0.16 percent and 0.10 percent, respectively.
They are expected to launch at the beginning of the third quarter in 2017.
Reflecting a through, rather than to, strategy for retirement investors, Vanguard TRFs are designed to reach their most conservative asset allocation seven years after their stated target dates.
For example, the asset allocation of Vanguard Target Retirement 2010 Fund is nearing 70 percent bonds and 30 percent stocks, mirroring that of the Vanguard Retirement Income Fund. As such, the 2010 Fund has reached the end of its lifecycle and will close to new investors effective immediately. The two funds will merge in mid-summer 2017, according to the company.
Vanguard is the largest provider of target-date funds with $449 billion assets under management. It estimates that $6 out of every $10 invested in target-date strategies in the U.S. goes to an index-based Vanguard TRF. More than 90 percent of Vanguard’s 5,900 DC plan sponsors offer TRFs.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
