VFIFX Review: Saving for retirement is something that is best started early on. Financial advisors recommend a portfolio starts off with higher risk and higher reward investments, like stocks, then transitions to safer bets, like bonds, as you get closer to your retirement date.
In the end, you want to focus on maintaining the returns you’ve received and growing them just enough to keep up with inflation, maybe a little more.
You can manage your portfolio like this or hire someone to do it for you. The first option takes time and know-how while the second will cost you a management fee as well as a performance fee. While each of those options have some strong positives that make those downsides worth it, there is another choice for the savvy investor – retirement funds.
How Do Retirement Funds Work?
Retirement funds are a unique investment vehicle. At its core, a retirement fund is a mutual fund, but it is much more than that. Most funds allow you to invest your money in a set allocation of stocks and bonds.
They adjust it periodically, but the goal is to earn you a decent return with minimal risk. Their definition of “decent” is highly relative. Some funds are more aggressive than others, but they tend to be fairly consistent in their approaches.
Retirement funds are different because they are designed to change over time. In the beginning, these funds tend to be more aggressive. You will see that most of the investment is in stocks.
Over time, the distribution changes. The fund becomes increasingly weighted towards bonds and other more conservative investments. These changes in allocation often happen in relationship to a target date. In the case of a retirement fund, this is the retirement date.
Retirement Fund Benefits
Retirement funds are very unique investments. They come with several advantages that you won’t find in most other options. While it is still important to do your research – every investment is a risk – retirement funds have certain benefits that make them a good fit for some investors.
Ease of Use
Retirement funds are easy to use. You just invest your money and leave it there to grow. There are no decisions to make or strategies to use. You don’t need to do any research or pay a management fee.
With retirement funds, someone else does all the work for you. They research and choose the investments included in the fund for you. The fund manages everything.
Retirement funds are adjusted for risk. Their allocations change based on how much risk/reward the fund is pursuing at a given time. They are hedged against currency fluctuations and changes in the economy as well.
In addition, retirement funds have well-published performance records. While they may not return every year or at the same rate, they have broader track records that can help you decide whether you feel the fund is being managed appropriately for the target date.
Retirement funds are different from other retirement investment vehicles because there is no limitation on when you can withdraw your money.
Whereas some retirement accounts require that you wait until you reach a certain age, retirement funds do not have that restriction.
What is the Vanguard Target Retirement 2050 Fund?
The Vanguard Target Retirement 2050 Fund was created for people who will retire in the year 2050 or thereabouts.
It has been around since 2006. The Fund includes a mixture of stocks and bonds, foreign and domestic investments. It invests in these through other funds that Vanguard controls.
This was the allocation as of Sep 2019. However, remember that the specific mix can and will change:
- Vanguard Total Stock Market Index Fund: 53.9%
- Vanguard Total International Stock Index Fund: 35.9%
- Vanguard Total Bond Market II Index Fund: 7.2%
- Vanguard Total International Bond Index Fund: 3.0%
Vanguard Target Retirement 2050 Fund Fact Sheet
- Ticket Symbol: VFIFX
- Inception Date: June 7, 2006
- Expense Ratios: 0.15%
- Assets Under Management: $19.47 billion
- Turnover: 6.7%
- Risk Level: 4/5 (suggesting higher risk)
- 10-year Return: 9.65% per annum on average
VFIFX Investment Strategy
The Vanguard Target Retirement 2050 Fund is designed for people who will retire in 2050, give or take a few years.
In the beginning, the Fund was more aggressive, but that approach will become more conservative as the fund nears its target date (2050).
It includes a wide variety of investments which the Fund invests in indirectly through Vanguard index funds.
The Fund is structured to include foreign investments – both equities and bonds – but these holdings are hedged to minimum exposure to currency fluctuations.
Is the Vanguard Target Retirement 2050 Fund Good?
Over the past ten years, the Vanguard Target Retirement 2050 Fund has returned an average of 9.65% per annum. This means that if you had put $10,000 into the account at the end of 2009, you would have had $28,905 in the fund at the end of 2018.
The Vanguard Target Retirement 2050 Fund’s rate of return has varied drastically in the past ten years. In 2018, the fund declined by 7.9% while, in 2009, its rate of return went as high as 28.31%.
The difference may seem drastic, but would-be investors should keep in mind that these figures are in alignment with the Fund’s benchmarks.
Long-term investments, like retirement funds, tend to fluctuate over time. They also tend to produce above-average returns over time. While no investment can guarantee a return (including retirement funds), the end result could be on-par with a 401(k), IRA, or other retirement account.
Investing in the Vanguard Target Retirement 2050 Fund
If you are going to retire in 2050 or around then, the Vanguard Target Retirement 2050 Fund is worth a closer look.
Investing in the fund now rather than closer to its inception date will mean that you will be involved in fewer higher risk investments and that could mean a more modest return over time. Whether or not the Vanguard Target Retirement 2050 Fund is a good fit for you will depend on your investment goals and your tolerance for risk.
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.