Vanguard is one of the largest providers of TRFs in the US and manages $358 billion in US-based target-date assets as at the end of December 2015.
Vanguard’s target retirement fund range includes nine funds made up of a mixture of equity and bond index funds and also exchange traded funds.
The funds are very similar to their blended LifeStrategy range and will hold many of the same underlying index funds. The LS range however does not currently hold ETFs. Ongoing charges are the same - 0.24%.
With the LifeStrategy funds, the investor selects the option which most closely matches the exposure to equities required and Vanguard will automatically rebalance the fund to ensure it remains at the required level. With the TRFs, investors pick the fund that best aligns with their expected retirement date, which automatically adjusts its portfolio mix based on the investor’s age, as retirement draws closer the fund will gradually reduce the percentage of equities towards an increasingly conservative position.
For example, the 2020 fund will hold 60% equities and 40% bonds - both are globally diverse. The 2040 fund holds 80% equities and just 20% in bonds.
With 25 years to retirement, I think its probably OK to have a significant allocation to equities. However, with just 4 years to retirement, some people may feel a little uncomfortable with as much as 60% in equities and such a weighting is possibly not what I would regard as 'conservative'.
The funds can be included in a Sipp, ISA and the new Lifetime ISA from 2017.
Steve Charlton, retirement expert at Vanguard, says:
“The UK retirement landscape is changing rapidly. Following pension freedom reforms in 2015, investors have more flexibility and choice but they also face even more decisions on how to save for retirement and how to spend or draw an income in retirement.”
“We’ve created Vanguard’s target retirement fund range in the knowledge that not everyone will know whether they will take lump sums, a regular income or buy an annuity until they retire,” Charlton said. “These funds help people to save and invest for retirement regardless of how they choose to use the funds in retirement.”
Vanguard research showed that many investors did not have the time or interest to dedicate to retirement planning.
Vanguard says the target retirement funds addresses many behavioural finance pitfalls such as trading too frequently, chasing returns and trying to time the market, instead focusing on asset allocation, diversification, transparency and balance between risk, return and cost.
My first impressions are that these funds offer a simple, low cost solution to retirement planning. I am not clear whether they are available to retail clients via the usual SIPP platforms but I hope they will be as I am sure many would welcome such an option.
What do others think - leave a comment below.
thanks for the write-up. these look ideal to myself, a 30 something, looking to slash the cost of my pensions in half for the next 30 years - without any micromanaging.
ReplyDeleteunfortunately, they haven't quite hit the main providers of SIPPs yet, lets hope it wont take too long...
Saving costs will always improve returns over the longer periods of a pension.
DeleteI think for the time being these are only available via adviser channels so diy retail investors could continue with the LifeStrategy option - same costs - and build in their personal 'glide path' to retirement (and beyond).