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Out With the Old, In With the Young: Vanguard Launches 2065 Fund

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Today’s 18-year-olds starting at their first job with their first 401(k) have a new retirement option. Vanguard announced on Thursday that it will launch a new target retirement fund for the youngest workers. The Vanguard Target Retirement 2065 Fund will launch in the third quarter of 2017. It will be available to individual investors with at least $1,000, with fees of approximately 0.16%. Institutional investors will have a minimum investment of $1 million, and fees of approximately 0.1%, according to a press release. 

The 2065 fund will start with an initial allocation of 54% to the Vanguard Total Stock Market Index Fund, and 36% to the Total International Stock Index Fund. Seven percent will be allocated to the Total Bond Market II Index Fund and 3% to the Total International Bond Index Fund.

“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. Moreover, retirement savers need guidance on asset allocation in an increasingly challenging and complex market environment,” Martha King, managing director of Vanguard’s Institutional Investor Group, said in a statement. “Our research has shown that TRFs have dramatically reduced extreme allocations — either too much cash or too much stock — that can expose investors to undue risk.”

Vanguard also announced that its 2010 fund has reached its most conservative allocation. The fund giant said that its target retirement funds are designed to reach their most conservative allocation seven years after their target dates. The Vanguard 2010 fund is nearing a 70% bond allocation and 30% stock allocation and will immediately close to new investors. 

Citing data from Morningstar, Vanguard noted that the target-date market has grown from $116 billion to $763 billion in the last 10 years. Vanguard estimates that with $449 billion in TDF assets under management, 60% of the assets invested in target-date strategies in the United States are in one of Vanguard’s index-based target retirement funds.

— Read Top 10 Funds in 401(k)s on ThinkAdvisor.