To encourage wary investors to take the first step, Vanguard is dropping the minimum on all twelve of the index-based funds in its Target Retirement series to $1,000 from $3,000.
Previously, only Vanguard STAR Fund, a balanced fund comprising 11 actively managed funds, was available to those with $1,000 to invest.
“By reducing the investment requirements on our target date funds, we hope to encourage more individuals to participate in the financial markets,” said Vanguard CEO Bill McNabb.
Each of the funds in the series of funds-of-Vanguard-funds automatically re-balances among asset classes and adjusts to a more conservative allocation over time. Funds directed toward those with a longer investment horizon, such as Vanguard Target Retirement 2050 Fund, provide investors with a portfolio of nearly 15,000 domestic and international securities in three broad-based index funds: Vanguard Total Stock Market Index Fund, Vanguard Total Bond Market II Index Fund, and Vanguard Total International Stock Index Fund.
”We believe that target date funds have been the single most important development in the past 25 years in terms of improving the retirement readiness of several generations of investors,” said Mr. McNabb. “These funds provide well-constructed, balanced investment programs, and research by Vanguard and others shows that asset allocation is the dominant factor in determining total return over the long term.”
Vanguard’s Target Retirement Funds feature weighted expense ratios ranging from 0.16% to 0.19% (or $1.60–$1.90 per $1,000 invested)—a fraction of the 1.17% average expense ratio ($11.70 per $1,000 invested) for all target-date funds, according to 2010 data from Lipper, Inc.
Since their introduction in 2003, Vanguard Target Retirement Funds have continued to grow in terms of assets and investor adoption. Vanguard Target Retirement Funds had aggregate assets of nearly $88 billion, and have led the industry for the past three years with $41 billion in target-date fund cash flow, according to Strategic Insight Simfund.