Vanguard® - Target date investments

A broadly diversified portfolio

Each target-date investment holds several low-cost Vanguard index funds to create a broadly diversified mix of stocks and bonds. The year in a target-date investment’s name is its target date, the approximate year in which an investor expects to retire and leave the workforce.

Automatic adjustments

A target-date investment will hold more stocks the further it is from its target date, seeking stocks’ higher potential growth. Stocks also have the highest risk of loss. To reduce risk as the target date approaches, Vanguard’s investment managers will gradually decrease the stock holdings and increase bond holdings over time. Bonds usually have a lower risk of loss, though they also have lower potential gains.

The legal details

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. U.S. Treasury investments and some U.S. government agency bonds are backed by the government, so it’s highly likely that payments will be made on time. But their prices can still fall when interest rates go up. 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.

How a target-date investment works

Whenever you invest, there's a chance you could lose the money. Target-date investments are subject to the risks of their underlying funds. The year in the investment name refers to the approximate year (the target date) when an investor would retire and leave the workforce. The investment will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. A target-date investment is not guaranteed at any time, including on or after the target date. Even though target-date investments simplify the investment process, they still require some monitoring to ensure that the portfolio is in line with your current situation. Diversifying means having different types of investments. It doesn’t guarantee you’ll make a profit or that you won’t lose money.

Start with your retirement year

A target-date investment usually has a year in its name (unless it’s designed for retirees). This is the target date, when an investor would retire and leave the workforce.

Consider the investment with the target date closest to the year you plan to retire. If you haven’t thought that far ahead, you can use the year in which you’ll reach full Social Security retirement age (65 to 67, depending on your date of birth).

Adjust if necessary

You don’t have to choose the investment that matches your expected retirement year. Once you review that investment’s mix of stocks and bonds, you could choose one with a later target date if you’d prefer a more aggressive investment mix. On the other hand, if you’d prefer a more conservative mix, you could choose an investment with an earlier target date.

You’re never locked in to a particular target-date investment. In fact, if you invest in one, we encourage you to check your investment mix from time to time to make sure it’s in line with your goals and tolerance for risk, especially if your planned retirement year changes.

How to choose a target-date investment

Nothing happens

A target-date investment doesn’t do anything special on the target date, and you don’t need to do anything either. Remember, each investment is designed to take you through retirement, which could last 30 years or more.

After the target date, your target-date investment will continue to shift its emphasis from stocks to bonds. After about seven years, the investment will maintain an investment mix designed for retirees taking withdrawals.

A target-date investment will always keep a portion of its assets in stocks. While continuing to invest in stocks does come with market risk, the long-term growth potential of stocks can help your buying power keep up with inflation during a long retirement.

Retirement plans