VFFVX Review: Preparing for retirement is delicate. On the one hand, you want to be able to generate a return on your money that builds and grows. On the other hand, you don’t want to risk losing your investment.
Retirement funds are one solution to this balancing act.
Investing in Retirement Funds
Retirement funds are a type of mutual fund. They let investors put their money in a series of stocks and bonds without actually owning shares in those investment vehicles.
Like other retirement-focused accounts, these retirement funds are managed with the idea of producing income with minimal risk. However, unlike other retirement accounts, you can withdraw your money at any time.
Retirement funds come with several other benefits as well. For one, there are effortless in the sense that they maintain an asset mix for you.
Someone else manages the fund. You can just put your money in the account and leave it there.
Plus, while no fund can offer a guaranteed return on your investment, many of these retirement funds have strong track records.
Retirement funds also tend to have target dates. These investment vehicles are weighted more heavily towards stocks when the target date is still decades away. As the target date comes closer, the fund shifts to less risky investments
What is the Vanguard Retirement 2055 Fund?
The Vanguard Retirement 2055 Fund is a retirement fund that Vanguard designed for people who intend to retire in 2055, give or take a year or two.
It features investments in both domestic and foreign stocks, small cap and large cap, mortgage-backed securities and corporate bonds in a diversified mix.
Then, these are hedged to protect against fluctuations in currency conversion risks.
Vanguard Target Retirement 2055 Fact Sheet
· Ticket Symbol: VFFVX
· Inception Date: August 18, 2010
· Expense Ratios: 0.15%
· Assets Under Management: $10.2 billion
· Turnover: 4.6%
· Risk Level: 4/5 (suggesting higher risk)
· Return Since Inception: 10.06% per annum on average
VFFVX Investment Strategy
The 2055 Fund includes investments in four mutual funds: the Vanguard Total Bond Market II Index Fund, the Vanguard Total International Bond Index Fund, the Vanguard Total International Stock Index Fund, and the Vanguard Total Stock Market Index Fund.
The majority of the 2055 Fund is in the Stock Market Index Fund – roughly 54%.
The International Stock Fund is the next largest component, making up some 36% of the fund. The remainder is in the bond index funds.
However, that allocation will change as the year gets closer to 2055. Eventually – within seven years of 2055 – the balance will look like Vanguard’s Target Retirement Income Fund.
Is the Vanguard Target Retirement 2055 Fund Good?
The Vanguard Target Retirement 2055 fund, VFFVX, has performed well over the years.
In its first year, the fund returned 15%. Its annual return percentage has varied wildly since then. The Fund has lost as much as 7.89% in a year (2018) and returned over 24% (2013).
Overall, VFFVX has produced an average annual return of 10% since the fund’s inception. This means that if you had invested $10,000 at the inception of the fund, you’d have had $21,443 as of 12/31/18.
While past performance is not indicative of future performance, understanding how the fund has done in the past does give you an idea of how it is being managed.
That said, keep in mind that the Vanguard Target Retirement 2055 fund is not meant to deliver consistent returns. Rather, it is a target-date retirement fund.
This means that the Fund will take its biggest risks early on, then taper that approach to a much more conservative one.
Investing in the Vanguard Target Retirement 2055 Fund
For people who invest in the Fund early, this variable approach helps to capture higher returns early on, when investors still have decades before retirement. However, this aggression tapers off as the retirement date nears. The Fund will move into less risky investments, like bonds, so that the principal of the account is not challenged, and the risk is minimal while the money can grow at the rate of inflation or better.
This works well for people who invest early – the investment has a chance to grow and the risk of losing everything is minimized as you approach retirement. However, investing in a retirement fund too far after the inception date is a different matter. The allocation is different and your potential to earn a higher return is limited.
If you do not invest in the Vanguard Target Retirement 2055 fund early enough, you are really pursuing a lower risk/lower reward investment because the riskier allocations and management are in the first several years of the fund.
Pay attention to the proportion of the retirement fund that is geared towards higher returns. In some cases, you may find that it serves your needs better to invest in a retirement fund that more closely mirrors your goals.
For instance, you may not want to invest in a 2055 retirement fund if you are not retiring in or near 2055.
Likewise, keep in mind that you likely will not get the same return on your investment as someone who invests in a retirement fund more closely to the inception date. You won’t get the benefit of a more aggressive investment strategy in the early years and you will miss out on the value of compounding returns.
VFFVX Review Summary
The Vanguard Target Retirement 2055 fund is a solid option for people who are retiring in 2055, give or take a few years.
The Fund may also be a good investment for those that want a more conservative investment and have a similar investment horizon.
Before you invest in the Vanguard Target Retirement 2055 fund, make sure that you understand how retirement funds work.
Also, take the time to evaluate how investing in a retirement fund after the inception date could fit into your larger retirement savings and income strategy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.