5 Best Vanguard Funds to Buy for Target Date 2030 Retirement

by Will Ashworth | June 30, 2014 1:45 pm

5 Best Vanguard Funds to Buy for Target Date 2030

Source: ©iStock.com/JackF

Retirement Investing in Vanguard Funds for Target Date 2030

You’re planning to retire in 16 years at the age of 66. You’ve determined that the best Vanguard funds to buy for target date 2030 will need to be a little more aggressive because your annual salary of, say, $55,000 has allowed you to save just $200,000 toward your retirement.

Vanguard mutual funds 401(k)If you put aside 10% of your income each year, you’ll likely hit 66 with approximately $689,000 to live on (according to this methodology). That doesn’t sound bad, but it’s well short of CNN Money’s recommended amount of $898,000.

Something’s got to give.

Either you will have to save more — for example, putting aside 15% of your income will get you to $780,000 based on a 6% return on your investments — or your investments will have to grow in excess of 6% per year. Given the bull run we’ve been on the past five years, this isn’t going to be easy. However, a combination of the two — 15% saved and an 8% annual return — should help get you most of the way to your target.

With this in mind, here are the best Vanguard funds for target date 2030:

Vanguard Dividend Growth Fund (VDIGX)

Vanguard Dividend Growth Fund (VDIGX) - Best Vanguard Funds for Target Date 2030

Vanguard Dividend Growth Fund (VDIGX)

Vanguard Funds’ biggest holding in its Vanguard Target Retirement 2030 Fund (VTHRX[1]) is the Vanguard Total Stock Market Index Fund (VTSMX[2]), which represents 54% of the $22 billion portfolio.

I’m suggesting that you replace VTSMX with the actively managed Vanguard Dividend Growth Fund (VDIGX[3]) despite the fact its annual expense ratio is 14 basis points more expensive.

My rationale is simple: With more investors looking for income from their investments in the absence of higher interest rates, dividend funds[4] have become some of the best Vanguard funds for target date 2030 — or any other retirement horizon for that matter.

VDIGX holds companies including UPS (UPS[5]), McDonald’s (MCD[6]) and Lockheed Martin (LMT[7]).

Read more about VDIGX here.

Vanguard Total International Stock Index Fund (VGTSX[8])

Best Vanguard Funds for Target Date 2030 - Vanguard Total International Stock Index Fund (VGTSX)

Vanguard Total International Stock Index Fund (VGTSX)

Whatever the size of portfolio — whether it’s $200,000 or $2 million — it makes sense to include some international flavor.

The easiest way to do this is to buy the Vanguard Total International Stock Index Fund (VGTSX[8]), which costs just 0.22% per year in management fees and has delivered an annual return of 11% over the past five years through June 25.

There are no U.S. investments among the 46 countries represented, which includes both emerging and developed markets.

With almost 50% of the portfolio invested in Europe, it might not be your cup of tea, but if you want one of the best Vanguard funds for target date 2030, VGTSX is a keeper.

Read more about VGTSX here.

Vanguard Strategic Equity Fund (VSEQX)

Best Vanguard Funds for Target Date 2030 -  Vanguard Strategic Equity Fund (VSEQX)

Vanguard Strategic Equity Fund (VSEQX)

Because I’ve purposely left VTSMX off the list of best Vanguard Funds for target date 2030, I need to replace the total market index with a midcap fund and a small-cap fund to capture a decent-sized chunk of the U.S. equity markets.

Vanguard Strategic Equity Fund (VSEQX[9]) takes care of the midcap aspect.

Midcap stocks tend to outperform both small and large-cap stocks over the long haul and they do it without any additional risk.

With the portfolio requiring an additional 2 percentage points of return over the next 15 years, it’s vital that mid-caps are a big part of it.

One of my favorite stocks is Trinity Industries (TRN[10]), and it’s a top-10 holding[11] in the $5.2 billion actively managed fund. On this alone, I’m impressed.

Read more about VSEQX here.

Vanguard Strategic Small-Cap Equity Fund (VSTCX)

Best Vanguard Funds for Target Date 2030 - Vanguard Strategic Small-Cap Equity Fund (VSTCX)

Vanguard Strategic Small-Cap Equity Fund (VSTCX)

Three portfolio managers with 66 years combined investment management experience oversee Vanguard Strategic Small-Cap Equity Fund (VSTCX[12]). The trio have $510 million to work with, which they’ve put into 321 small-cap stocks[13] with a median market cap of $2.4 billion.

VSTCX’s top 10 holdings account for just 7.1% of the portfolio (TRN is the largest holding in this one!), suggesting the managers are trying to cast a wider net and ratchet down the risk levels. Given small caps are extremely volatile, I believe this is a very wise course of action.

Of the five funds mentioned as the best Vanguard Funds for target date 2030, VSTCX is the most expensive with an MER of 0.41%. However, given that VSTCX is an actively managed and small-cap fund, I wouldn’t think twice about that.

Read more about VSTCX here.

Vanguard Total Bond Market Index Fund (VBMFX)

Best Vanguard Funds for Target Date 2030 - Vanguard Total Bond Market Index Fund (VBMFX)

Vanguard Total Bond Market Index Fund (VBMFX)

To obtain the 8% annual return required to meet the retirement goals set out in the beginning, the fixed-income component must be reduced.

The VTHRX is currently weighted 24% bonds; I’d drop that by about half, which makes the Vanguard Total International Bond Index Fund’s (VTIBX[14]) inclusion essentially pointless.

Vanguard Total Bond Market Index Fund (VBMFX[15]) invests 70% of its assets in U.S. government bonds with varying maturity dates, and the remainder in corporate bonds rated Baa or higher.

While the fixed-income component might be reduced, the funds that are invested are in good hands. Of the best Vanguard funds for target date 2030, VBMFX is definitely the most conservative.

Read more about VBMFX here.

Thinking of an earlier retirement or want more aggressive Vanguard Funds?
Read 5 Best Vanguard Funds to Buy for Target Date 2025[16]

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

Endnotes:

  1. VTHRX: /stock-quotes/VTHRX-stock-quote/
  2. VTSMX: /stock-quotes/VTSMX-stock-quote/
  3. VDIGX: /stock-quotes/VDIGX-stock-quote/
  4. dividend funds: https://investorplace.com/2014/06/buy-vanguard-dividend-funds-dividend-for-retirement/4/#.U6wzC1652bw
  5. UPS: /stock-quotes/UPS-stock-quote/
  6. MCD: /stock-quotes/MCD-stock-quote/
  7. LMT: /stock-quotes/LMT-stock-quote/
  8. VGTSX: /stock-quotes/VGTSX-stock-quote/
  9. VSEQX: /stock-quotes/VSEQX-stock-quote/
  10. TRN: /stock-quotes/TRN-stock-quote/
  11. top-10 holding: https://personal.vanguard.com/us/funds/snapshot?FundId=0114&FundIntExt=INT
  12. VSTCX: /stock-quotes/VSTCX-stock-quote/
  13. 321 small-cap stocks: https://personal.vanguard.com/us/funds/snapshot?FundId=0615&FundIntExt=INT#tab=2
  14. VTIBX: /stock-quotes/VTIBX-stock-quote/
  15. VBMFX: /stock-quotes/VBMFX-stock-quote/
  16. 5 Best Vanguard Funds to Buy for Target Date 2025: https://investorplace.com/2014/06/best-vanguard-funds-target-date-2025/#.U7GgLvldWCk

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