Turning 30? Look at Vanguard Target Retirement 2050 Fund

The Vanguard Target Retirement 2050 Fund (VFIFX 1.03%) is a target date mutual fund that's suited for those looking to retire in or around the year 2050. The Vanguard Group intended this fund to be a simple solution for investors looking to save for retirement, investing in several other Vanguard funds and changing its asset allocation over time to get more conservative as retirement approaches. With gradual shifts to the proportion of stocks and bonds in the portfolio, Vanguard Target Retirement 2050 doesn't require much attention from its investors, letting you relax and prepare for a retirement 30 to 35 years from now.

What's the Vanguard Target Retirement 2050 Fund's objective?

The Vanguard Target Retirement 2050 Fund's objective is to offer a diversified portfolio of stocks and bonds that's consistent with the time horizon of the fund. Accordingly, the fund intends to reduce its stock allocation in the future in favor of more assets in bonds, helping to make the fund more stable when investors can't afford the same level of volatility they can early in their lives. Asset allocation shifts continue beyond the 2050 target date for seven more years, and then, the fund shifts to the income-based objective shared by the Vanguard Target Retirement Income Fund.

Vanguard advises investors planning to retire between 2048 and 2052 to consider this fund. If you're turning 30 now and want to retire at age 63, then the 2050 timeframe works perfectly.

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What is Vanguard Target Retirement 2050's asset allocation strategy?

Vanguard Target Retirement 2050 currently has an overall asset allocation of about 90% in stocks and 10% in bonds. That's completely reasonable for a fund with a time horizon of 33 years before retirement, taking full advantage of more favorable long-term historical returns for stocks. Young investors have long enough to recover from any short-term market disruptions.

In particular, Vanguard Target Retirement 2050 has allocations to the following four Vanguard mutual funds:

Data source: Vanguard Group.

How much does the fund cost?

Vanguard Target Retirement 2050 doesn't charge a load or other upfront fees. Annual expense ratios are 0.16%, or $16 per year for every $10,000 invested in the fund. Investors have to have an initial investment of $1,000 per Vanguard's rules, which apply to regular taxable accounts, as well as IRAs, or other specialized account types.

How much income does the fund provide?

With a target date of 2050, income is a secondary consideration for the fund, as growing the value of the assets is paramount. Investors can expect that focus to remain for a long time, until retirement starts approaching in earnest.

Still, the 2050 fund has an income yield of more than 2%. Dividends from its stock holdings make up the lion's share of that income, with a small helping from bond interest. The fund distributes its income and capital gains every year, with the prospects for rising income in the future.

Is Vanguard Target Retirement 2050 right for you?

Like Vanguard's other target-date funds, the 2050 fund makes things easy, but isn't perfect. What some self-motivated investors find is that, if you want, you can just buy the Vanguard mutual funds that the 2050 fund owns yourself and pay just 0.04% to 0.12% per year. That isn't a huge savings, but if you have a lot of money, then the small percentage differences can add up hundreds or even thousands of dollars over time.

The 2050 fund also follows its own investing method, and you should know how it works. In particular, the 2050 fund won't be completely out of the stock market by the time 2050 rolls around, and that might come as a surprise if you're not prepared. You have the right to move your cash into the income-fund option, or out of Vanguard entirely if you're not comfortable with how the money is being invested, but with potential tax consequences, it's better to know the facts upfront.

If you want to retire around 2050, then Vanguard Target Retirement 2050 deserves a closer look. With a simple, diversely invested, and inexpensive strategy, the fund is exactly what many young retirement savers could use to start out on their journey toward their golden years.