Vanguard remains the go-to name for just about every investor, whether new or experienced. Vanguard set the standard for thoughtful and intelligent investing, and John Bogle’s mantra of using index funds and keeping costs low have influenced funds and investors alike across the world.
Vanguard is considered the way to go for conservative investing, even though it offers plenty of riskier choices as well. Still, it’s difficult to argue with some of its assets when it comes to retirement investing.
Some of the approach I take in my stock advisory newsletter, The Liberty Portfolio, derives from a few core Vanguard concepts.
So here are three solid Vanguard choices for retirement investors. I’ve tried to offer three different varieties for all kinds of investors.
Vanguard Funds for Retirement: Vanguard Target Retirement Income Fund (VTINX)
The Vanguard Target Retirement Income Fund (MUTF:VTINX) is specifically for investors who are already in retirement investing mode. Consequently, it aims for about 30% stocks and 70% bonds. Now, this fund doesn’t take too many chances, which is the point of any retirement investing fund. It actually just invests in five other Vanguard funds, which is one reason the expense ratio is only 0.13%, more than covered by the 1.75% yield.
Now, I will say this — I am not a fan of bond funds. The problem is that, while there is diversification, the entire portfolio can move at once. One of the reasons The Liberty Portfolio only holds individual bonds is to eliminate that risk, and allows investors to evaluate the health of just one company.
Still, as safety goes, it is a decent fund. The average annual return is 4.9%, with a standard deviation of 5.7. That means there is a 95% chance the annual return will be between -6.5% and +16.3%. That’s still a broad range for a retirement investing portfolio but it’ll have to do.
Vanguard Funds for Retirement: Vanguard LifeStrategy Conservative Growth Fund (VSCGX)
For retirement investing folks who would like a bit more equity in their mix, the Vanguard LifeStrategy Conservative Growth Fund (MUTF:VSCGX) holds 40% stocks and 60% bonds. The stocks also have 16% exposure to international companies.
Like its peer, there is also only a 0.13% expense ratio, the result of the fund itself being comprised of four other Vanguard funds. Its yield is 2%, but it has an annual average return of 7% since inception.
Over the past ten years, it has an average annual return of 4.76% with a standard deviation of 7.47. That means the fund has a 95% chance of returning between -10% and +20% in any given year. Not bad.
That boils down to the fund capturing about 75% of market upside and only 71% of market downside.
Vanguard Funds for Retirement: Vanguard FTSE All-World Small-Cap Fund (VFSVX)
For investors who would like more risk and stick with equity exposure only, the Vanguard FTSE All-World ex-US Small Capital Index Fund (MUTF:VFSVX) is a good choice. This is a truly international fund that focuses on small-cap investments. The advantage here is that small-cap companies have a greater chance for capital appreciation, and because inflation is actually closer to 10% instead of 3%, most retirement portfolios are underinvested in equities.
The fund has only 13% North American exposure, 39% to greater Europe, and is otherwise divided between 17% Japan, 5% Australasia, 13% Developed Asia, and 11% Emerging Asia.
The fund traditionally beats its MSCI ACWI Ex-USA benchmark in up years, and is very close in down years. It has an 8.6% five-year annual average return, with a standard deviation of 11.1. Thus, it has a 95% chance of returning between -16% and +31% in any given year.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at [email protected].