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Vanguard reduces investment minimums on popular retirement funds

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Vanguard is reducing the minimum investment requirement from USD3,000 to USD1,000 for the 12 funds in its index-based Target Retirement Fund series. Previously, only Vanguard STAR Fund, a balanced fund comprising 11 actively managed funds, was available to those with USD1,000 to invest.

“Investing early and investing regularly are two of the most important things investors can do to help ensure their retirement readiness. By reducing the investment requirements on our target date funds, we hope to encourage more individuals to participate in the financial markets,” says Vanguard CEO Bill McNabb (pictured).

Designed to simplify investing for retirement, Vanguard Target Retirement Funds are funds-of-Vanguard-funds that automatically re-balance among asset classes and adjust to a more conservative allocation over time. Funds in the series 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 represented by 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,” says 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 USD1.60–USD1.90 per USD1,000 invested)—a fraction of the 1.17% average expense ratio (USD11.70 per USD1,000 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 USD88 billion, and have led the industry for the past three years with USD41 billion in target-date fund cash flow (source: Strategic Insight Simfund as of March 31, 2011).

Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work-force. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.

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