Vanguard Adds Fund To Target-Date Lineup
VALLEY FORGE, PA, June 3, 2010 -- Vanguard® announced today that it is expanding its 11-fund target-date series with a new fund for investors who plan to retire and leave the work force in or within a few years of 2055.
The firm has filed a registration statement with the U.S. Securities and Exchange Commission for Vanguard Target Retirement 2055 Fund, a broadly diversified fund that gradually shifts to more conservative investments over the life of the fund. Vanguard anticipates that the fund, aimed at investors 18 to 22 years old, will be available for investment in the third quarter of 2010.
"Target-date funds now serve as the cornerstone of the retirement portfolios for many IRA holders and participants in defined contribution plans, and for good reason. These funds provide a balanced, well-diversified investment program in a single and relatively straightforward vehicle, suiting the needs of many investors," said Vanguard CEO and Chairman Bill McNabb.
Vanguard Target Retirement Funds have gained rapidly in popularity since first being introduced in 2003, as measured by both asset growth and investor adoption. The funds had garnered $64 billion in net assets as of April 30, 2010, leading the industry for the past three years with $41 billion in cash flow (source: Strategic Insight).
Vanguard reported that, as of the end of 2009, 75% of defined contribution plans at Vanguard offered a target-date fund and 42% of the participants in those plans invested in them. Of those participants, Vanguard estimated that half chose the funds voluntarily rather than being placed in them as a default investment option. In addition, 12% of Vanguard IRA® investors hold Vanguard Target Retirement Funds.
Target-date funds are particularly beneficialin eliminating extreme risk behavior for many investors. According to Vanguard research, 16% of non-target-date investors held conservative, zero-equity portfolios (indicating they may be invested too conservatively) and 21% held all-equity portfolios (perhaps indicating an allocation that is too aggressive). Nearly half had equity exposure above 90% or below 10%. Target-date funds prevent these portfolio extremes by offering investors a balanced portfolio of stocks, bonds and cash reserves, with risk levels varying by age.
As with the existing Target Retirement Funds, the 2055 Fund will invest in other low-cost Vanguard index funds.
The expense ratio of the new fund is expected to be 0.19%, similar to that of the other funds in the lineup. The average industry expense ratio for a target-date fund in the 2055 Fund's peer group is 1.17%, according to Lipper, Inc.
The original six Vanguard Target Retirement Funds were introduced in 2003: the 2005, 2015, 2025, 2035, and 2045 funds, and an income fund. In 2006, Vanguard launched an additional five funds: 2010, 2020, 2030, 2040, and 2050.
Target-date funds are broadly diversified, professionally managed funds. The year in the fund name refers to the approximate year (the target date) that an investor would expect to retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones over the life of the fund.Investments in target-date funds such as Vanguard Target Retirement Funds are subject to the risks of their underlying funds. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date. Diversification does not ensure a profit or protect against a loss in a declining market.
For more information on target-date funds, please visit Vanguard's Target Retirement Fund resource center.
About Vanguard
Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world's largest investment management companies and a leading provider of company-sponsored retirement plan services. Vanguard manages nearly $1.4 trillion in U.S. mutual fund assets. Vanguard offers more than 160 funds to U.S. investors and more than 50 additional funds in non-U.S. markets.
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