Question

Research a mutual fund family such as Vanguard, American Funds, T. Rowe Price, and so forth. Identify one mutual fund from that family for the following category of: Fund devoted to retirement investing.

1) Analysis of the characteristics of Fund devoted to retirement investing

2) Make the recommendation of the type of investor to which the Fund has dedicated retirement investments is suitable.

Answer 1

For our analysis , we have selected Vanguard Target retirement Funds . Before analysing Vanguard specific retirement fund , need to understand about retirement or Traget fund .

Target fund / retirement fund is a class of mutual fund which do rebalances of asset classes over time . In general its start with heavier stock at young age and later on heavier bond as individual getting old .

Most important factor is asset allocation of target fund done thus gradually in conservative way

Target date fund offer Investor to out all their fund in Autopilot mode in One Vehicle .

In general target dated fund at their initial launch with High tolerance for RISK and therefore gradually more heavily weighted towards high performing but speculative assets . Portfolio manager keep on resent the allocation of Investment categories

Investor who are comfortable designating a percentage of their retirement, they can choose for this type of fund .

This funds a divided into three groups from which investor has to choose . Each group is basd on RISK TOLERANCE . Individual investor can be conservative , aggressive or moderate risk taker . Investor has to select fund according to their risk appetite.

target date fund provide a simple way to save fund for retirement . they normally offer exposure of multiple market like active as well as passive market

While selecting this fund , Investor has to review asset allocation of this fund . They need to understand following disadvantage of target dated / retirement fund like :

1. Higher expenses ratio – because these type of funds are in nature of FOF ( Fund on Fund )
2. Income can not be guaranteed
3. Need to consider inflation adjustment

In case of vanguard Retirement fund , noticed couple of positive point as below :

1. Ge a complete Portfolio under a Single fund – this fund gives Investor a straightforward approach
2. Less risk through boarder diversification – Diversification of fund includes – invest in Vangaurd broadest Indexed fund , acces giving to Investor into thousands of US and International stock and bonds
3. A professionally managed with proper mix of asset allocation – Fund manager keep on adjusting fund to manage risk and more shift to Bond when it closer to get retirement
4. Low cost – most important factor to choose any fund – Average vanguard retirement fund expenses ratio 81% less than the Industry average
5. These fund suggested on an estimate retirement age woud be approx 65
6. Always remember that these type of fund does not ensure a profit or any protection against a loss investment in bonds ( which are subject to Interest rate , inflation risk and credit risk