Vanguard Bringing Lower Costs To Target Retirement Fund Investors

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Feb 26, 2015, 09:00 ET

VALLEY FORGE, Pa., Feb. 26, 2015 /PRNewswire/ -- Vanguard is expanding its family of low-cost target-date funds, with plans to introduce a new Institutional Target Retirement Fund lineup. Twelve new funds with an estimated expense ratio of 0.10% will be offered to institutional investors with a total $100 million minimum initial investment. (This minimum is at the plan sponsor level; there is no balance requirement at the individual participant level*.) The new fund series is expected to launch by the end of the second quarter.

"Single-fund options have revolutionized the retirement savings landscape," said Vanguard CEO Bill McNabb. "Professionally managed, diversified investment options such as Target Retirement Funds have helped enhance the future financial security of investors by providing a sophisticated asset allocation and a disciplined, long-term strategy in an all-in-one-fund offering."

The use of target-date funds has increased significantly in recent years, primarily through 401(k) defined contribution plans. More than half of participants in 401(k) retirement plans at Vanguard invest in a target-date fund, and 86% of 401(k) and other defined contribution plans at Vanguard offer a target-date fund. Vanguard research has shown that professionally managed allocations in defined contribution plans, such as target-date funds, have dramatically improved portfolio diversification and helped reduce extreme risk levels for participants.

Further diversification for Target Retirement Funds
Vanguard also announced plans to increase the international exposure in its all-in-one funds. The international equity allocation of Vanguard's Target Retirement Funds and LifeStrategy® Funds will increase to 40% from 30%, and the international fixed income allocation will increase to 30% from 20%.

"International holdings are a valuable diversifier in a balanced portfolio, giving shareholders exposure to return streams that don't move in lockstep with the U.S. markets. It has become easier to capture these diversification benefits as the costs of international investing have decreased," said Vanguard Chief Investment Officer Tim Buckley. "We carefully debate the merits of proposed changes to our Target Retirement Funds and other funds-of-funds, and make them when deemed to be in the best, long-term interests of our clients."

Vanguard research has demonstrated that non-U.S. equities have diversified the returns of U.S. equities on average over time, while the primary factors driving international bond prices are relatively uncorrelated to the same factors for U.S. bonds, providing a diversification benefit.

The overall strategic asset allocation and glidepath of these Target Retirement Funds will not change. The expense ratios of the Target Retirement Funds, ranging from 0.16% to 0.18%, are not expected to change with the added international exposure. Investment allocation changes are expected to be complete by year-end.

Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.

About Vanguard
Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world's largest investment management companies. As of January 31, 2015, Vanguard managed nearly $3 trillion in U.S. mutual fund assets. Vanguard offers nearly 160 index and actively managed funds to U.S. investors and more than 120 additional funds in non-U.S. markets. Vanguard is the largest defined contribution plan asset manager in the United States and provides investments to more than 6,100 defined contribution plans, including full-service recordkeeping and investment services to nearly 3.9 million participants. Those include more than 2,700 plans and over 200,000 participants served by Vanguard Retirement Plan Access for small businesses. For more information, please visit institutional.vanguard.com.

* Investment minimums for Institutional Target Retirement Funds may differ for certain categories of investors.

All investing is subject to risks, including possible loss of principal. Diversification does not ensure a profit or protect against a loss. Investments in stocks issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.

A registration statement relating to the Institutional Target Retirement Funds has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This communication shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

For more information about Vanguard funds, visit www.vanguard.com, or call 800-662-7447, to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Copies of the final prospectus can be obtained from Vanguard. Please note that a preliminary prospectus is subject to change.

Vanguard Marketing Corporation, Distributor.

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