Your investment lineup
You have a variety of retirement plan investment options so you can create an investment mix that fits your needs. Your investment options are divided into two tiers—all-in-one investments and core investments, which are explained below.
Get detailed information about your investment options.
Tier 1: All-in-one investments
How to invest your money among stocks and bonds—now and as you grow older—is one of your most important financial decisions.
Each Vanguard Target Retirement Trust II provides a professionally maintained, diversified mix of investments that shifts its emphasis to more conservative investments as the year of retirement nears. So, if you choose this tier, consider making a single Target Retirement Trust your only plan investment.
Even though Target Retirement Trusts simplify the investment process, they still require some monitoring to ensure that the portfolio is in line with your current situation.
Consider choosing the trust with the date that's closest to the year when you expect to retire. If you are already retired, consider choosing Vanguard Target Retirement Income Trust II. This trust seeks to provide current income and some capital appreciation to retirees.
Tier 2: Core investments
Core investments can offer the basic ingredients for a diversified, well-balanced portfolio. You can combine several to create a portfolio that suits you. If you’d like to create your own diversified investment mix, you may want to start with the funds in this tier.
Some core investments are index funds, which can provide low-cost access to broad segments of the stock and bond markets. Also known as passively managed funds, index funds generally use a buy-and-hold strategy to try to track the performance of a given market.
Why would anyone invest in an index fund and earn just what the market earns? Because index funds generally cost less to run than actively managed funds, whose managers try to outperform the market.
Note that the “market” represents all investor dollars. When some investors’ dollars outperform the market, other investors’ dollars must underperform. After subtracting fund costs—including management fees, administrative expenses, and trading commissions—actively managed funds can face difficulties over time just to keep pace with the market.
This tier also includes a more conservative stable value fund.
A note about risk
Whenever you invest, there’s a chance you could lose the money. Investments in Target Retirement Trusts are subject to the risks of their underlying funds. The year in the trust name refers to the approximate year (the target date) when an investor in the trust would retire and leave the workforce. The trust will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Trust is not guaranteed at any time, including on or after the target date. Diversifying means having different types of investments. It doesn’t guarantee you’ll make a profit or that you won’t lose money. Bond funds are made up of IOUs, primarily from companies or governments. These funds risk losing value if the debt isn’t repaid on time. Also, bond prices can drop when interest rates rise or the issuer’s reputation suffers. PIMCO Total Return Fund uses financial contracts called derivatives to try to reduce risk and improve returns. But derivatives have risks of their own. These include the chance that the fund manager will misjudge the direction of the market or that the fund can’t exit the contracts at the best time. It’s possible for the fund to lose all of the money invested in derivatives—and more. Small- and mid-cap funds are made up of the stocks of small and medium-sized companies. These companies have fewer financial resources than larger companies. Because of that, their stock prices can be more affected by swings in the economy. Non-U.S. stocks or bonds have risks tied to the political and economic stability of their country or region. And if the value of the foreign currency falls, the value of the stocks or bonds would also fall.
As its name suggests, a stable value investment tries to keep its share price constant. But this is not guaranteed, and it’s possible to lose money with an investment like this. Unlike bank savings accounts, this investment is not insured by the U.S. government. It’s also not insured by your employer or Vanguard.