Shared by: arm.makhsudyan
1. Target Retirement Funds offered by Vanguard can be very helpful and dependable investment option for 401 k plan participants, for the following reasons: Low cost investing: Unlike other such funds Vanguard distributes its funds directly to its customers, therefore offers no-load funds with the lowest 0.21% expense ratio among its competitors, the only fund fee the investors pay. Vanguard maintains cost leadership first because majority of TRFs are index funds which do not require costly active management; second, it saves on advertisements, relying mainly on word of mouth. Further, 80% of its transactions are made through WEB also minimizing the costs. Simple one-stop investment option: It is very easy and convenient especially for 401k plan participants as they are designed for employees which seldom have time to manage portfolio themselves. So TRFs offer them just to invest money and do not care about it until the day of the retirement. Little risk due to high diversification, asset allocation adjustment and index funds. They invest in a mix of asset classes such as stocks, bonds, other funds including international, money market instruments etc. and use different allocation strategies based on age, investing heavily in bonds as the target date approaches. While TRFs can be good option for risk adverse investors they cannot attract risk tolerant ones. However, considering that high risk portfolios though promise high returns, they have high investing costs which cannot be affordable for many 401k participants. So it can be concluded that Vanguard’s TRF are very good option for them. 2. Whether High Net-Worth individuals should or should not invest in TRFs depends on their risk tolerance level. Those who are less risk tolerant can invest in such funds. But, those who are risk tolerant they are likely to make high-risk-return investments. Such as Venture Capital provision which will not only boost HNW investors’ returns but also will contribute to startups; or Hedge Funds, which are also mutual funds but unlike TRF they are highly expensive, risky but provide high returns to its investors.