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Target-Date Deep Dive: Vanguard

This giant's target-date series remains among the best for retirement savers.

Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. As the default option in many employer-sponsored retirement plans. Target-date strategies play important roles for many. We're therefore taking a deep dive into some of the largest target-date providers. Today, we're diving into Vanguard's target-date series with Jason Kephart. Jason is a strategist in Morningstar's multi-asset manager research team.

Jason, thanks for being here today.

Jason Kephart: Thanks for having me.

Dziubinski: We're kicking off our series today talking about Vanguard because it's likely a very familiar name to many target-date fund investors, because it has so many target-date assets. Tell us a little bit about just how big Vanguard is in this space?

Kephart: It's huge. in 2020, it became the first target-date series to cross $1 trillion in net assets, which is just a mind-bogglingly large number. You really can't emphasize enough how many retirement participants this series touches. So, it is kind of the benchmark for target-date funds.

Dziubinski: Now, unlike some other target-date series providers, Vanguard really only offers one series, right?

Kephart: Yep.

Dziubinski: Why is that?

Kephart: Vanguard just truly believes in offering a low-cost solution that's going to get you broad exposure to global stocks and bonds and is simple, straightforward, and easy to understand. And that's what they're delivering with this series.

Dziubinski: What are some of the pros of this series? And how do we rate it?

Kephart: We rate it Silver, which is our second-highest rating. We think it's absolutely a wonderful series for almost every investor. We do think there are a couple of series that have a little bit more of an edge to them, but this series is absolutely wonderful just because it is so straightforward. It gets you exposure to U.S. and international stocks, broad market cap exposure, U.S. bonds and international bonds. So, it really just covers all the major bases, it's getting close to the global market cap. If you believe in efficient markets, this is the series for you.

Dziubinski: And then lastly, are there any negatives--or maybe that's too strong of a word--maybe things that target-date investors in this particular series should be aware of?

Kephart: There are some things I think you can like nitpick a little bit, but obviously, I don't think there are any causes for concern. I would not recommend anyone kind of jump out of this series. But I think one of the things to keep in mind is they do have the largest exposure to international bonds. So, it's performance is going to be driven a little bit more by what's happening to international bonds than other series. They do hedge it back to the dollar, that means when the U.S. dollar is rallying, which typically happens when stocks fall, that tends to be a pretty good ballast. Good downside protection. I think the other thing to keep in mind is with its size that's $1 trillion, it's just kind of gargantuan. It's hard to move a ship that size. So, you wouldn't expect them to be too nimble when it comes to making changes. They have made changes over time, but they tend to be very slow and thoughtful, which I think is good. But if there are fast-changing markets or you do get prolonged value-growth rallies or interest rates rising, I don't think they would be moving as quick to adapt to those markets. And that's kind of by design, right? They want the market-cap exposure, and they want that broad exposure. They think keeping costs low and staying invested over the long term is going to lead to the best outcome for retirees. And I think that, for the most part, is true.

Dziubinski: Well, Jason, thank you for your time today and for doing a little bit of a deep dive on Vanguard's target-date series. We appreciate it.

Kephart: Thanks for having me.

Dziubinski: I'm Susan Dziubinski with Morningstar. Thanks for tuning in.