Vanguard TDFs—Well-designed in any weather
Plan sponsors haven’t often had to defend their target-date fund choices in the 10 years since the global financial crisis, the longest bull market in U.S. history. That could change the next time markets turn stormy.
At Vanguard, we believe in investing for the long term, designing strategies that can endure through both good market environments and bad ones. Our Target Retirement Funds are no exception. The features that make these funds easy to defend in any market also helped their investors weather the crisis ten years ago.
A defensible choice in any environment
The sophisticated design of Vanguard Target Retirement Funds can hold up in both good times and bad. The series offers the broadest market-cap coverage in the industry, with the underlying funds holding more than 28,000 individual securities, comprising 89% of the global market cap. This mix of U.S. and international stocks and bonds helps to diversify exposure and dampen volatility over time.
The inwardly sophisticated design of Vanguard Target Retirement Funds is outwardly simple, making them easy for investors to understand. The strategy is implemented using a deceptively simple portfolio of five underlying index funds. In addition to low costs and broad diversification, this implementation allows for greater transparency. With only four to five underlying subasset classes, plan sponsor oversight and communication of performance results to participants involve fewer moving parts.
There are no alternative strategies or tactical overlays that could potentially lead to unexpected swings in performance. Long-term investor performance is primarily tied to long-term market factors instead of short-term events.
Investors weathered the crisis
How did this defensible choice perform during the global financial crisis? Vanguard Target Retirement Funds provided meaningful downside protection during the heart of the downturn, and were able to recover and get investors back to even within three to five years (total recovery time depends on vintage).
Cumulative returns: S&P 500, Vanguard Target Retirement Funds, Other TDFs
Investors displayed similar resiliency. Retirement plan participants who voluntarily invested in Target Retirement Funds abandoned their investment at roughly half the rate of other equity investors in 2008. The equity abandonment rate was even lower for investors who were autoenrolled into the funds. The result, Target Retirement Fund investors were more likely to have benefitted from the subsequent recovery.
Ready for the next storm
Sooner or later there will be another downturn. When that day comes, Vanguard Target Retirement Funds stand ready to help investors weather it. Investors and plan sponsors can have confidence that Vanguard Target Retirement Funds are built to endure.
Contributed by Vanguard
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 Source: Morningstar 2017 Target-Date Fund Landscape, as of December 31, 2016.
 Source: Vanguard, as of December 31, 2008.
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