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Vanguard launches target-date fund for young investors

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Vanguard has launched the Vanguard Target Retirement 2055 Fund, a fund for young investors that expands its target-date fund series to 12 offerings.

The expense ratio of the 2055 fund is expected to be 0.19 per cent, compared to the average expense ratio of 1.17 per cent for a target-date fund in the fund’s peer group, according to Lipper.

The fund is aimed at investors 18 to 22 years old who plan to retire and leave the workforce in or within a few years of 2055.

The fund’s initial allocation is approximately 90 per cent stocks and ten per cent bonds, reflecting that age group’s ability to assume higher initial equity risk because of the length of time until retirement. The fund will gradually shift to bonds over time to an expected allocation of 50 per cent stocks/50 per cent bonds upon reaching its target date and will attain an expected final allocation of 30 per cent stocks/70 per cent bonds seven years after the target date.

Vanguard says young investors may especially benefit from the balanced, diversified approach of target-date funds because their coming-of-age investment experience has largely been framed by severe market volatility.

“Over the past few years, the stock market has dropped 57 per cent, rallied 86 per cent, and subsequently declined eight per cent, leading to the potential for an entire generation to become wary of investing,” says Vanguard chairman and chief executive Bill McNabb. “We must encourage younger investors to participate in the financial markets at an early age, save at aggressive levels, keep an eye on investment costs, and maintain a long-term focus. Target-date funds may be an ideal vehicle for many of these investors to help position their retirement savings for the long run.”

As with Vanguard’s existing target retirement funds, the 2055 fund will invest in other low-cost Vanguard index funds and provide exposure to US stocks and bonds, as well as developed and emerging market international stocks.

The fund’s underlying funds invest in about 6,000-plus US stocks and bonds and 2,000-plus international stocks.

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