Vanguard Target Retirement 2025 Fund: One-Stop Investing for Baby Boomers

If you're planning to retire in the next six to 10 years, this fund can simplify your portfolio.

Matthew Frankel, CFP
Matthew Frankel, CFP
Jun 6, 2017 at 1:21PM
Investment Planning

The Vanguard Target Retirement 2025 Fund (NASDAQMUTFUND:VTTVX) is a target-date retirement fund that invests in an age-appropriate asset allocation of stocks and bonds, and is intended for investors who plan to retire between 2023 and 2027. The fund has a low 0.14% expense ratio and pays a dividend yield of approximately 2.1% as of June 2017.

What is a target-date fund?

Target-date retirement funds, also known as lifecycle or age-based funds, are commonly offered by 401(k) and other retirement plans, and are also available for purchase directly through IRAs and standard brokerage accounts. Basically, these funds are designed to be an all-in-one retirement investment.

50-something couple looking at a tablet.

Target-date funds can make retirement investing easy. Image source: Getty Images.

Vanguard's target-date funds all hold a combination of stocks and bonds. Stocks have the highest growth potential, but are also rather volatile. Bonds, on the other hand, are less volatile, but have limited upside potential. So, younger investors with long investment time horizons should keep stock-heavy portfolios, while a greater emphasis on bonds would be more appropriate for older investors.

The idea behind target-date funds is to make the asset allocation process automatic. When you buy a target-date fund, it will have an appropriate mix of stocks and bonds, based on how long you have until retirement. As you get older, the fund's focus will gradually shift toward a more income-oriented portfolio by allocating more money to bonds.

The Vanguard Target Retirement 2025 Fund

The Vanguard Target Retirement 2025 Fund is designed for people who are between the ages of 55 and 59 years old now, based on a target retirement age of 65, however the appropriateness of the fund for you can vary, especially if you plan to retire significantly earlier or later than 65.

Vanguard's target-date retirement investment funds are passive investment vehicles, and the general strategy is easy to understand. Vanguard takes the fund's capital and invests in some of the company's well-known, low-cost index funds. Because of this approach, expenses are low –- all the fund costs investors is 0.14% in passed-through expense ratios.

As of this writing, the fund has approximately 65% of its assets in stock-based Vanguard index funds, with the remaining 35% in bonds. Specifically, here is the fund's current portfolio composition:

Underlying Fund

% of Total Assets

Vanguard Total Stock Market Index Fund


Vanguard Total International Stock Index Fund


Vanguard Total Bond Market II Index Fund


Vanguard Total International Bond Index Fund




Data source: Vanguard.

Basically, this allocation is designed to give investors the high-growth potential of stocks, but also allocating a significant portion of the portfolio to fixed-income assets to protect investors' capital as the target retirement date nears.

How the fund will change over time?

It's important to emphasize that the allocation listed above isn't going to last long. The long-term plan is to gradually shift the fund's asset allocation from now until approximately seven years after the target date is reached, or 2032. At that point, the fund's composition should match that of the Vanguard Target Retirement Income Fund, which has 30% of its assets in stocks and 70% in bonds. So, you'll see a pretty big shift over the next 15 years. In fact, the fund's stock allocation has dropped from 67% to less than 65% since the beginning of 2016.

Between now and then, Vanguard's other target-date funds can give you a general idea of what to expect. For example, the Vanguard Target Retirement 2025 Fund should look like the 2020 target-date fund five years from now, the 2015 fund 10 years from now, and the Vanguard Retirement Income Fund 15 years from now.

Target Date

Stock Allocation %

Bond Allocation %










Target Retirement Income Fund



Data source: Vanguard as of 4/30/2017.

Who should buy the Vanguard Target Retirement 2025 Fund?

In a nutshell, the Vanguard Target Retirement 2025 Fund is an appropriate investment for people within five to 10 years of their anticipated retirement date who want to put their investment strategy on auto-pilot. For the time being, the fund will keep a relatively high allocation of stocks to provide adequate growth potential, and will gradually shift toward fixed-income assets as you approach and enter retirement.