Page 47 - DIY Investor Magazine | Issue 34

When considering a fund it is worth looking under the bonnet as funds with the same target date may differ in terms of the assets they hold; true, all 2050 target-date funds will be heavily weighted toward equities, but some might opt for domestic stocks, while others look to international stocks.
Some might favour investment-grade bonds, others high-yield, lower-grade debt instruments, always, ensure a fund’s portfolio fits your comfort level and appetite for risk.
Vanguard is an investment manager offering a comprehensive series of target-date funds; here we compare the characteristics of the Vanguard Target Retirement 2065 fund to the characteristics of the Vanguard 2025.
The Vanguard 2065 Fund has an ongoing charge (OCF) of 0.24%. As of Q2 2022, the portfolio allocation was 80% in stocks and 20% in bonds. It holds other Vanguard mutual funds to achieve its goals.
It had 19% in the Vanguard U.S. Equity Index Fund GBP Acc, 18.9% in Vanguard FTSE Developed World ex-U.K. Equity Index Fund GBP Acc and 15.5% in Vanguard FTSE U.K. All Share Index Unit Trust GBP Acc.
The Vanguard 2025 Fund also has an OCF of 0.24%. Because it matures 20 years in advance of 2065, it is more conservative, with 56% in equities and 44% in bonds.
It has allocated 19.2% to the Vanguard Global Bond Index Fund GBP Hedged Acc, 18.8% to Vanguard FTSE Developed World ex-U.K. Equity Index Fund GBP Acc and 11.4% to Vanguard Global Aggregate Bond UCITS ETF GBP Hedged Accumulating.
Both funds invest in the same assets, but 2065 is more heavily weighted toward stocks, with a relatively smaller percentage of bonds and cash equivalents. The 2025 Fund has greater weight in fixed income and fewer stocks, so it is less volatile and more likely to contain the assets the investor needs to begin making withdrawals in 2025.
It is possible to continue to continue to hold a fund after the target date, although it may behave differently depending on the type fund you have.
A ‘through fund’ will continue adjusting its asset allocation toward more conservative holdings as time passes; a ‘to-fund’ will retain its final asset allocation as of its maturation date indefinitely.
Most target-date funds are established in 5-year intervals (e.g. maturing in 2030, 2035, 2040 etc) and there is no set rule if your birth year doesn’t end with a 5 or a 0 – you can round up to the 2035 fund, or if you have a lower risk tolerance, use the nearer-term 2030 one.
You could also choose to put something like 60% of your allocation in 2035 fund and 40% in the 2030 fund.
Because many such funds are relatively recent inventions in the UK it may not be possible to assess their performance over a long time-horizon.
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DIY Investor Magazine · July 2022