You’ve just turned 45. Many experts suggest the next decade — ages 45 to 54 — will be your peak earnings years. It stands to reason that you would be fairly confident about this phase of your life. With 21 years to retirement, it should be easy picking the best Vanguard Funds for target date 2035.
Unfortunately, it’s not quite that simple.
That’s because you are what is commonly referred to as the “sandwich generation” and face financial question marks concerning both your college-aged kids and parents who are likely well into retirement. Financial commitments today make it harder to set aside money for your own retirement in the future.
How do you juggle all of these concerns? Very carefully.
You’ll want to have cash available to cover today’s expenses … yet be taking sufficient investment risks to grow your retirement portfolio to the point you’ll have plenty to live on when you hit age 66. Like I said, it isn’t easy.
With this in mind here are the best Vanguard Funds for target date 2035:
Buy Vanguard Prime Money Market Fund (VMMXX) for Target Date 2035 Retirement
You’re probably wondering why I’ve led off with the Vanguard Prime Money Market Fund (VMMXX), the most conservative investment Vanguard offers. It’s simple: Your short-term cash requirements at this point trump all other uses of capital.
I suppose you could invest this money (say 20% of your disposable cash) in a short-term bund fund such as the Vanguard Short-Term Federal Fund (VSGBX), which invests in treasury bills issued by the federal government or by federal agencies, but that seems pointless if you’re only going to turn around and redeem some of these shares to pay for necessary items like your child’s college textbooks, your parents’ medical expenses or a million other potential expenses.
When it comes to the best Vanguard Funds for target date 2035, this is definitely the most boring, but it’s also hugely important. And expenses for VMMXX only run 0.17%, or $17 per $10,000 invested.
Buy Vanguard Precious Metals and Mining Fund (VGPMX) for Target Date 2035 Retirement
I’ve chosen the Vanguard Precious Metals and Mining Fund (VGPMX) because it has seriously underperformed every other stock fund offered by Vanguard Funds over the past five years. You won’t find it held by any of Vanguard’s target date funds, including Vanguard Target Retirement 2035 (VTTHX).
Reversion to the mean suggests VGPMX will deliver above-average gains over the next five years leading to extraordinary gains — but not without additional risk. In fact, I doubt you’re going to find another Vanguard fund with this much potential risk. That said, a long-term investment horizon reduces the volatility inherent in sector funds.
It’s not everyone’s cup of tea, but when used in moderation it could be one of the best Vanguard Funds for target date 2035. Expenses for VGPMX run 0.25%.
Buy Vanguard Growth Index Fund (VIGRX) for for Target Date 2035 Retirement
The Vanguard Growth Index Fund (VIGRX) invests in large-cap growth stocks. Tracking the CRSP US Large Cap Growth Index, VIGRX invests in U.S. companies (median market cap of $55 billion) whose earnings are growing 19% per annum and whose stocks trade at 25 times earnings.
Every portfolio needs a combination of growth and value stocks. VIGRX is definitely in the growth camp with $40 billion in total net assets invested across 372 stocks with just 24% in the top 10 holdings. Charging 0.24%, its annual expense ratio is cheaper than 80% of funds with similar holdings.
As far as growth funds are concerned, this is one of the best Vanguard Funds for target date 2035.
Buy Vanguard International Value Fund (VTRIX) for Target Date 2035 Retirement
A particularly Euro-centric fund with 52% of the $8.6 billion in total net assets invested in Europe, the Vanguard International Value Fund (VTRIX) is an actively managed portfolio invests in large-, mid- and small-cap stocks outside the U.S. that are considered to be undervalued. The median market cap is $41.4 billion with the average stock trading at 18 times earnings, a multiple almost one-third less than the growth stocks from VIGRX.
With an earnings growth rate of 13% compared to 19% for VIGRX, the three value-oriented firms managing the fund’s assets are definitely interested in buying stocks at bargain prices. VTRIX acts as a good value play complimenting the growth orientation of VIGRX, and it also provides geographic diversification outside the U.S.
When considering the best Vanguard Funds for target date 2035 and international stocks are part of the equation you’ll definitely want to consider VTRIX. Expenses run 0.43%.
Buy Vanguard Explorer Value Fund (VEVFX) for Target Date 2035 Retirement
If your target date for retirement is more than five years away, it definitely makes sense to include small-cap stocks in your portfolio. In years when they do well, they tend to seriously outperform large caps which usually represent the bulk of most peoples’ retirement accounts.
The Vanguard Explorer Value Fund (VEVFX) invests in 175 small-cap stocks with a median market cap of $2.5 billion. More than 50% of the portfolio is directed to just two sectors: Financials and Information Technology. Over the past three years, it has achieved an annualized total return of 17.2% — 115 basis points greater than the Russell 2500 Value Index. Despite being the second-most expensive stock-related fund in Vanguard’s arsenal at 0.66% annually, its performance speaks for itself.
If you’re interested in performance when selecting the best Vanguard Funds for target date 2035, you’ll want to put VEVFX at the top of the list.
Thinking of an earlier retirement or want more aggressive Vanguard Funds? Read:
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.