Vanguard hopes to begin selling a new target-date fund for those retiring in about 45 years.
The company said Thursday, June 3, that it is expanding its 11-fund target-date series and has filed a registration statement with the Securities and Exchange Commission (SEC) for the Vanguard Target Retirement 2055 Fund, which is a broadly diversified fund that will gradually shift 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 in a statement.
The fund giant says the Vanguard Target Retirement Funds have gained rapidly in popularity since their introduction in 2003. 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, according to Strategic Insight.
A recent report published by the Financial Research Corp. notes that target-date funds should amass $880 billion in assets by 2015, and target-risk funds should gather $300 billion.
Target-date funds are particularly beneficial in 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.
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.
Vanguard now has a total of $1.4 trillion in U.S. mutual fund assets.