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Vanguard Target Retirement 2030 Keeps Its Eye on the Prize

With these retirement-focused funds, staying put is the best strategy.

When the stock market crashes, the hardest thing to do is to do nothing. But target-date fund investors who took that route came out of the sell-off just fine.

Vanguard Target Retirement 2030 (symbol, VTHRX), a proxy for all target-date funds but designed for people with 10 years to go before retirement, returned 0.2% over the past 12 months, including a 24.9% loss from peak to trough in February and March. That beats 71% of all target-date 2030 funds. For context, Standard & Poor’s 500-stock index lost 34% during the winter sell-off.

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Target-date funds, which hold stocks and bonds, are designed to help people invest appropriately for retirement. Experts make the investing decisions, rebalance the portfolio when needed and shift holdings to a more conservative mix as you age. The Target Retirement 2030 fund has 67% of assets in stocks, 31% in bonds and 2% in cash.

These funds, fixtures in 401(k) plans, also help save investors from themselves. Most target-date fund investors buy shares with every paycheck, automatically buying at lower prices in down markets. They tend not to sell until they’re close to retirement.

During the historic sell-off, some shareholders did unload a few shares. The net inflow (money coming in, less money going out) in Vanguard’s Target Retirement series, which includes 12 funds, was negative in March by $3.9 billion. That was unusual but modest, given that the firm manages a total of $726 billion in target-date fund assets, says Vanguard spokesperson Carolyn Wegemann.

Kiplinger's Personal Finance
Kiplinger's Personal Finance

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Shareholders who sold missed out on rebalancing moves in March, when portfolios took profits in higher-priced fare to buy low-priced assets in order to keep target allocations intact. Given market volatility, Vanguard rebalanced Target Retirement port­folios, which hold index funds, more than usual. “Sometimes the market was down 10% one day and up 10% the next,” says Marty Klepp, who heads Vanguard’s index strategy team.

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Over the long haul, Vanguard Target Retirement 2030 has delivered solid returns. Since its June 2006 inception, the fund has gained 6.0% annualized, better than the 4.9% annualized return in the typical fund with a 2030 target date.

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