A broadly diversified portfolio
Each Target Retirement Fund invests in several low-cost Vanguard index funds to create a broadly diversified mix of stocks and bonds. The year in a Target Retirement Fund’s name is its target date, the approximate year in which an investor in the fund expects to retire and leave the workforce.
A Target Retirement Fund 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 fund’s stock holdings and increase its bond holdings. Bonds usually have a lower risk of loss, though they also have lower potential gains.
A note about risk
Keep in mind that a Target Retirement Fund is subject to the risks of its underlying funds. Its returns are not guaranteed, and investing in one does not ensure that you will have enough income in retirement. Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.