8 Top Vanguard Funds for Retirement: Analyzing Costs, Returns, and Performance

In recent times, most investors prefer to invest using passive investment strategies with lazy portfolio management. Passive investing has “exploded” since the financial crisis in 2008/09, and part of this is due to the enormous growth of ETFs.

Passive investing allows you to spend a minimum amount of time and effort and receive a satisfactory returns, which is enough for retirement. Furthermore, passive investing saves you time and makes you less liable to make cognitive mistakes when investing.

Passive strategies include a popular asset allocation strategy that makes extensive use of various funds in the form of ETFs.

Among the many ETF index funds, the funds of the Vanguard Group are popular for a couple of reasons. In this article, we go through the 8 best Vanguard funds for retirement.

We’d also like to mention that we have plenty of similar robust investment strategies on our major landing page.

What Is Vanguard Group

With more than $6 trillion in assets, Vanguard dominates the mutual fund and exchange-traded fund landscape in the United States. The asset manager is a go-to choice for long-term investors for many reasons:

  • Vanguard funds tend to be low in cost. Vanguard has built its reputation as a low-cost asset manager and it remains one of the industry’s lower-cost providers;
  • Vanguard funds generally pursue simple, reliable strategies. Vanguard’s brand is synonymous with index funds which, by their very nature, are simple in their approaches and reliable in their performances;
  • Long-term investors can easily build well-diversified portfolios exclusively of top-rated Vanguard mutual funds or ETFs;
  • Vanguard covers the bases with excellent choices among the three main asset classes: U.S. stocks, international stocks, and bonds;
  • It also excels when it comes to more tightly defined strategies, boasting highly rated style-specific, dividend-stock, real estate, and inflation bond funds.

Vanguard and John Bogle

The Vanguard Group was founded by John Bogle, who sadly passed away in 2019. Bogle is regarded as the “father of passive investing”, and he had (and has) a huge following. Please read our take on Bogleheads 3 And 4 Fund Portfolio.

Vanguard Retirement Portfolio – performance and returns

Further down in the article we have covered and explained 8 Vanguard retirement funds. Before we do that, we’d like to present a backtest of a portfolio we put together of 5 retirement funds. We allocated different weightings. All data in this article is downloaded from Yahoo!finance.

Let’s establish our Vanguard Retirement Portfolio that consists of 5 vanguard retirement funds:

Fund NameFund TickerWeight
Vanguard LifeStrategy Income FundVASIX10%
Vanguard LifeStrategy Conservative Growth FundVSCGX15%
Vanguard LifeStrategy Moderate Growth FundVSMGX25%
Vanguard LifeStrategy Growth FundVASGX35%
Vanguard Target Retirement 2040 FundVFORX15%

We backtested our Vanguard Retirement Portfolio using a “buy and hold” strategy and rebalanced at the beginning of each year. For backtesting, we used the funds we picked with the appropriate weights. Backtesting interval from 2007 to 2023. All quotes are dividend-adjusted.

Portfolio equity curve:

8 Best Vanguard Funds For Retirement

We started with 10 000 and ended up with 23 317. Please see the table below for performance summary.

Portfolio underwater curve (drawdowns):

A drawdown refers to the decline in value from a relative peak value to a relative trough. A maximum drawdown is the maximum observed loss from a peak to a trough of a portfolio before a new peak is attained.

Drawdowns are an important consideration, because most investors’ risk tolerance is much smaller than we anticipate.

Here is the drawdown chart for our Vanguard Retirement Portfolio:

8 Best Vanguard Funds For Retirement - performance and returns

Portfolio monthly and annual returns:

YearJanFebMarAprMayJunJulAugSepOctNovDecYr%
20071.1%-0.6%1.0%3.1%2.3%-1.0%-1.8%1.1%3.0%2.1%-2.6%-0.5%7.2%
2008-4.2%-1.9%-0.4%3.6%1.1%-6.2%-0.9%0.5%-7.5%-13.7%-4.1%2.7%-27.8%
2009-6.5%-7.5%6.8%7.5%4.9%0.2%6.1%2.9%3.3%-1.4%4.1%0.8%21.8%
2010-1.9%1.9%4.1%1.4%-5.2%-2.7%5.4%-2.4%6.3%2.6%-0.5%4.4%13.5%
20111.2%2.4%0.2%2.9%-0.8%-1.3%-1.0%-4.3%-5.7%7.1%-0.8%0.3%-0.4%
20124.0%2.9%1.0%-0.2%-4.7%2.9%1.1%1.7%1.9%-0.6%0.8%1.3%12.3%
20132.9%0.5%2.0%1.8%-0.1%-1.8%3.4%-1.8%3.4%2.9%1.3%1.2%16.5%
2014-1.8%3.3%0.3%0.5%1.7%1.5%-1.2%2.5%-2.2%1.6%1.3%-0.6%7.1%
2015-0.4%3.3%-0.6%1.0%0.2%-1.7%0.8%-4.3%-1.9%4.7%-0.2%-1.4%-0.8%
2016-3.1%-0.3%5.1%0.9%0.5%0.5%2.9%0.3%0.4%-1.7%0.4%1.4%7.4%
20171.7%2.1%0.7%1.2%1.4%0.4%1.7%0.5%1.2%1.4%1.4%1.0%15.9%
20183.1%-2.9%-0.7%0.2%0.8%-0.2%1.9%0.9%-0.0%-5.2%1.3%-4.2%-5.3%
20195.5%1.8%1.5%2.2%-3.3%4.6%0.3%-0.4%1.1%1.6%1.7%2.1%20.1%
2020-0.1%-4.3%-9.7%7.5%3.4%2.2%3.7%3.4%-1.7%-1.5%8.1%3.3%13.8%
2021-0.4%1.2%1.4%2.9%1.0%1.1%0.8%1.5%-3.0%3.1%-1.5%2.3%10.8%
2022-3.7%-2.1%0.1%-6.3%0.3%-5.8%5.4%-3.6%-7.4%3.6%6.5%-3.3%-16.2%
20235.8%-2.7%2.6%1.0%-1.0%N/AN/AN/AN/AN/AN/AN/A5.6%

The portfolio performance statistics compared to benchmark S&P 500 Total Return index looks like this:

Statistical MetricPortfolioS&P 500 TR
Annual Return %5.31%8.84%
Exposure %99.98%100.00%
Risk Adjusted Return %5.31%8.84%
Max. drawdown-42.84%-55.19%
CAR/MaxDD0.120.16
Standard Deviation14.17%22.64%
Sharpe Ratio (3% risk-free)0.160.26

The returns are lower than S&P 500 but that is due to the bond allocations. Let’s look at the best 8 Vanguard retirement funds in detail:

Vanguard LifeStrategy Income Fund (VASIX)

Vanguard LifeStrategy Income Fund is one of four Vanguard life-cycle funds that use target allocation as a simplified approach to meeting investors’ different objectives and risk tolerances.

Rooted in asset allocation theory, Vanguard LifeStrategy Income Fund seeks to provide current income and some capital appreciation by investing in four other Vanguard funds:

  • Total Bond Market II Index Fund – 56%;
  • Total International Bond Index Fund/Total International Bond II Index Fund – 24%;
  • Total Stock Market Index Fund – 12%;
  • Total International Stock Index Fund – 8%.

The combination of four Vanguard funds produces a portfolio that is highly diversified by asset class and holdings with a large allocation to bonds.

Vanguard LifeStrategy Income Fund overview:

  • Category: 15% to 30% Equity Allocation;
  • Assets Under Management (AUM): 4.49 billion;
  • Yield: 2.09%;
  • Expense Ratio: 0.11%;
  • Inception Date: Sep 29, 1994;
  • Ticker: VASIX.

Vanguard LifeStrategy Conservative Growth Fund (VSCGX)

Vanguard LifeStrategy Conservative Growth Fund is one of four Vanguard life-cycle funds that use target allocation as a simplified approach to meeting investors’ different objectives and risk tolerances.

Rooted in asset allocation theory, Vanguard LifeStrategy Conservative Growth Fund seeks to provide current income and low to moderate capital appreciation by investing in four other Vanguard funds:

  • Total Bond Market II Index Fund – 42%;
  • Total Stock Market Index Fund – 24%;
  • Total International Bond Index Fund/Total International Bond II Index Fund – 18%;
  • Total International Stock Index Fund – 16%.

The combination of four Vanguard funds produces a portfolio that is highly diversified by asset class and holdings. Because it’s a conservative fund, it has a huge allocation to bonds.

Vanguard LifeStrategy Conservative Growth Fund overview:

  • Category: 30% to 50% Equity Allocation;
  • Assets Under Management (AUM): 10.32 billion;
  • Yield: 2.06%;
  • Expense Ratio: 0.12%;
  • Inception Date: Sep 29, 1994;
  • Ticker: VSCGX.

Vanguard LifeStrategy Moderate Growth Fund (VSMGX)

The Vanguard LifeStrategy Income Fund belongs to a set of four Vanguard life-cycle funds designed to cater to the varying objectives and risk tolerances of investors through a simplified target allocation approach.

Based on asset allocation theory, the Vanguard LifeStrategy Moderate Growth Fund aims to achieve capital appreciation and a level of current income that falls within the low to moderate range. This is accomplished by investing in four other Vanguard funds.

  • Total Stock Market Index Fund – 36%;
  • Total Bond Market II Index Fund – 28%;
  • Total International Stock Index Fund – 24%;
  • Total International Bond Index Fund/Total International Bond II Index Fund – 12%.

By combining four Vanguard funds, a highly diversified portfolio is formed, encompassing a wide range of asset classes and holdings. It has more allocated to equity and stocks than bonds.

Vanguard LifeStrategy Moderate Growth Fund overview:

  • Category: 50% to 70% Equity Allocation;
  • Assets Under Management (AUM): 18.85 billion;
  • Yield: 1.96%;
  • Expense Ratio: 0.13%;
  • Inception Date: Sep 29, 1994;
  • Ticker: VSMGX.

Vanguard LifeStrategy Growth Fund (VASGX)

The Vanguard LifeStrategy Growth Fund is part of a series of four Vanguard life-cycle funds that utilize target allocation as a simplified method to address the diverse objectives and risk tolerances of investors.

Based on the principles of asset allocation theory, the Vanguard LifeStrategy Growth Fund aims to achieve long-term capital appreciation while also generating some current income. This is accomplished through investments in four other Vanguard funds.

  • Total Stock Market Index Fund – 48%;
  • Total International Stock Index Fund – 32%;
  • Total Bond Market II Index Fund – 14%;
  • Total International Bond Index Fund/Total International Bond II Index Fund – 6%.

The combination of four Vanguard funds produces a portfolio that is highly diversified by asset class and holdings, but it has a tilt toward stocks, obviously because it’s more of a growth fund.

Vanguard LifeStrategy Growth Fund overview:

  • Category: 70% to 85% Equity Allocation;
  • Assets Under Management (AUM): 18.84 billion;
  • Yield: 1.95%;
  • Expense Ratio: 0.14%;
  • Inception Date: Sep 29, 1994;
  • Ticker: VASGX.

Vanguard Target Retirement Income Fund (VTINX)

Vanguard Target Retirement Income Fund uses an asset allocation strategy designed for investors currently in retirement.

The fund seeks to provide current income and some growth of capital by investing in a mix of the following Vanguard funds (allocations are subject to change):

  • Total Stock Market Index Fund – 17%
  • Total Bond Market II Index Fund – 37%;
  • Total International Stock Index Fund 12%;
  • Total International Bond II Index Fund – 17%;
  • Short-Term Inflation-Protected Securities Fund -17%.

The combination of funds produces a portfolio that is diversified by asset class and holdings.

Vanguard Target Retirement Income Fund overview:

  • Category: Target-Date Retirement;
  • Assets Under Management (AUM): 37.17 billion;
  • Yield: 2.71%;
  • Expense Ratio: 0.08%;
  • Inception Date: Oct 26, 2003;
  • Ticker: VTINX.

Vanguard Target Retirement 2040 Fund (VFORX)

The Vanguard Target Retirement 2040 Fund is specifically designed for investors who anticipate retiring between the years 2038 and 2042. It employs an asset allocation strategy tailored to this timeframe.

The primary objective of the fund is to achieve growth of capital and generate current income in alignment with its target allocation at present. This is accomplished through a gradual transition towards a more conservative blend of the following Vanguard funds.

  • Total Stock Market Index Fund;
  • Total Bond Market II Index Fund;
  • Total International Stock Index Fund;
  • Total International Bond II Index Fund;
  • Short-Term Inflation-Protected Securities Fund.

The combination of funds produces a portfolio that is diversified by asset class and holdings.

As your retirement date approaches, the fund’s allocation will grow more conservative and will begin to invest in the Vanguard Short-Term Inflation-Protected Securities Index Fund to provide a hedge against inflation while dampening the overall volatility of the portfolio. In this regard, the fund diversifies both stock and conventional bond exposure.

Within seven years after 2040, the fund’s asset allocation should resemble that of the Target Retirement Income Fund.

Vanguard Target Retirement 2040 Fund overview:

  • Category: Target-Date 2040;
  • Assets Under Management (AUM): 71.02 billion;
  • Yield: 1.95%;
  • Expense Ratio: 0.08%;
  • Inception Date: Jun 6, 2006;
  • Ticker: VFORX.

Vanguard Target Retirement 2050 Fund (VFIFX)

The Vanguard Target Retirement 2050 Fund is specifically crafted for investors who have retirement plans set between the years 2048 and 2052. It employs an asset allocation strategy tailored to suit this time frame.

The primary objective of the fund is to achieve growth of capital and generate current income in alignment with its present target allocation. This is accomplished through a gradual shift towards a more conservative blend of the following Vanguard funds.

  • Total Stock Market Index Fund;
  • Total Bond Market II Index Fund;
  • Total International Stock Index Fund;
  • Total International Bond II Index Fund;
  • Short-Term Inflation-Protected Securities Fund.

The combination of funds produces a portfolio that is diversified by asset class and holdings.

The fund provide broad diversification while incrementally decreasing exposure to stocks and increasing exposure to bonds as each fund’s target retirement date approaches.

The fund continue to adjust for approximately seven years after that date until their allocations match that of the Target Retirement Income Fund.

Vanguard Target Retirement 2050 Fund overview:

  • Category: Target-Date 2050;
  • Assets Under Management (AUM): 54.52 billion;
  • Yield: 1.97%;
  • Expense Ratio: 0.08%;
  • Inception Date: Jun 6, 2006;
  • Ticker: VFIFX.

Vanguard Target Retirement 2060 Fund (VTTSX)

The Vanguard Target Retirement 2060 Fund is specifically designed for investors who have retirement plans set between the years 2058 and 2062. It follows an asset allocation strategy tailored to meet the needs of this time frame.

The primary goal of the fund is to achieve growth of capital and generate current income in line with its current target allocation. This is accomplished through a gradual transition towards a more conservative blend of the following Vanguard funds.

  • Total Stock Market Index Fund;
  • Total Bond Market II Index Fund;
  • Total International Bond II Index Fund;
  • Total International Stock Index Fund.

The combination of funds produces a portfolio that is diversified by asset class and holdings, but is set to vary.

As you near your retirement date, the fund’s allocation will gradually shift towards a more conservative approach. It will start investing in the Vanguard Short-Term Inflation-Protected Securities Index Fund to offer protection against inflation and reduce the overall volatility of the portfolio. This strategy allows for diversification of both stock and conventional bond exposure within the fund.

Within seven years after 2060, the fund’s asset allocation should resemble that of the Target Retirement Income Fund.

Vanguard Target Retirement 2060 Fund overview:

  • Category: Target-Date 2060+;
  • Assets Under Management (AUM): 18.06 billion;
  • Yield: 1.94%;
  • Expense Ratio: 0.08%;
  • Inception Date: Jan 18, 2012;
  • Ticker: VTTSX.

8 Best Vanguard Funds For Retirement – conclusion

The above funds are what some of the best that Vanguard can offer.

However, you must carefully read the prospectus to find out if it fits your investment goals. It might be well worth spending a few hours on this!

FAQ:

Why has passive investing become popular since the 2008/09 financial crisis?

Passive investing involves strategies that aim to replicate the performance of a specific market index rather than actively selecting individual investments. It gained popularity post the 2008/09 financial crisis due to its low time commitment, cost-effectiveness, and ability to provide satisfactory returns for retirement.

Why are Vanguard funds popular among investors for retirement?

Vanguard funds are popular for several reasons, including their low costs, simple and reliable investment strategies, and a wide range of choices across U.S. stocks, international stocks, and bonds. The founder, John Bogle, is considered the “father of passive investing,” contributing to Vanguard’s reputation.

What is the Vanguard Retirement Portfolio, and how was it backtested?

The Vanguard Retirement Portfolio is a combination of five Vanguard retirement funds with different weightings. It was backtested using a “buy and hold” strategy, rebalancing annually from 2007 to 2023. The results showed a starting value of $10,000 growing to $23,317, with a detailed breakdown of monthly and annual returns.

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