A Fund With A No-Stress Approach To Retirement Income
For investors already in retirement, the decision about asset mix often comes down to a simple question: What will create a reliable source of income while mitigating portfolio risk?
Retirement income portfolios generally consist of stocks, bonds and cash. It's a more conservative allocation strategy than is typically recommended for a 40-year-old who has many working years ahead.
One of the largest mutual funds geared toward retirees is the Vanguard Target Retirement Income Fund (MUTF: VTINX), with total assets of $11.2 billion. Its net asset value is $12.76 with a minimum investment of $1,000.
Like many funds from the Vanguard family, this has a low expense ratio -- in this case, 0.16 percent. That is always a key metric to consider, because if the overall fund expenses are low, more of your money is working for you. That can show up in the return you get.
The fund sports a year-to-date gain of 6.47 percent. In the past month during a volatile market period, the fund has dropped 1.38 percent. As a point of reference, that's a more mild decline than many all-stock funds have seen.
The Vanguard Target Retirement Income Fund operates on the principal of a glide path, meaning that stock exposure decreases over time. In the seven years after retirement, an investor's holdings will have been ratcheted down to about 70 percent in bonds and the rest in stocks.
This fund uses index funds, rather than single stocks or bonds, to achieve the desired allocation mix. Top holdings include the Vanguard Total Bond Market II Index Fund (MUTF: VTBIX), the Vanguard Total Stock Market Index Fund (MUTF: VTSMX), the Vanguard Short-Term Inflation-Protected Securities Index Fund (MUTF: VTIPX), the Vanguard Total International Bond Index Fund (MUTF: VTIBX) and the Vanguard Total International Stock Index Fund (MUTF: VGTSX).
One of the advantages of this kind of investment is ease of use; individual investors who don't want the hassle of researching their own allocations and re-balancing are offered a simple path to global and asset class diversification. For retirees who would rather golf or spend time with the family, rather than poring over stock screens, a vehicle like the Vanguard Target Retirement Income Fund often makes sense.
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