Do you plan to retire in 2055? For some reason, that particular year strikes me as the distant future. It’s only 45 years from now — a year today’s 20-year-olds will be checking out of the cubicle and checking into active adult communities. Perhaps it’s because it’s one century after the year Dr. Brown had the idea for the flux capacitor and Marty McFly encountered his mom and dad as teenagers, back in time.
Vanguard is catering directly to teenagers and recent former teenagers with a new target date fund with 2055 as the target year. Target date funds are designed for investors who want a simple way to have a portfolio with age-appropriate risk exposure that changes over time as the retirement date approaches. We’ve explored the drawbacks and benefits of this hands-off approach to asset allocation and portfolio management, and if it means anything, I do not have use a target date retirement fund for myself.
The Vanguard Target Retirement 2055 Fund launched yesterday with a low expense ratio of 0.19% with 90% of the portfolio in stocks and 10% in bonds. You’ll also need a minimum of $3,000 to begin investing in this fund. Other brokerages have yet to catch up with Vanguard. Fidelity’s farthest-looking target date fund is calibrated for a retirement year of 2050. T. Rowe Price does offer a 2055 fund with a similar current allocation as the Vanguard fund but with a significantly higher expense ratio of of 0.79%.
It’s going to be difficult for Vanguard to market this investment to its intended audience. These probably work best in 401(k)s that new employees enroll in automatically. With a typical life of working until the age of 65, today’s 20-year-olds are either not thinking that far into the future or are wary of the stock market given its recent recession and volatility.
Published or updated August 19, 2010.
{ 4 comments… read them below or add one }
I totally disagree. This will be an easy sell. It would be where I would invest if I still used target funds, I’m in my late 20s. Or, I would split between 2045 and 2055. Plenty of 20s workers are throwing money in their Fidelity 401(k)s, and that fits the bill.
Besides, they MUST have this fund. Maybe they don’t need it this year, but they’ll need it in a couple years.
I wish I had known about target retirement funds like this one when I was in college, as I would have started investing then instead of after I graduated.
Is Vanguard going to do any marketing on college campuses? This fund is a great option for students, especially the ones who are working their way through school.
It’s not that they have to market anything to any specific audience anyways. They are adding a new fund to their portfolio. Whenever the “younguns” are ready, they will take a look at it.
For me, I’m 25. Personally, I like the 2055, because it’s aggressive if I expect to retire in 2045.
Generally, I like Target Date Funds. They are hands-off and a good choice for those who have a small savings to invest.
Everyone has good points so far. The fund must exist from the standpoint that investors will want, even if they don’t know, target date funds that match their needs. And ten years from now, those 20 year olds will be 30, and perhaps interested in investing then. The bigger question is how to reach to more teenagers and young adults and get them interested in thinking about their (distant) future, even if Vanguard is not addressing that question by announcing the new fund.