Vanguard four fund portfolio

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On February 6, 2013 Vanguard announced the creation of four fund portfolios by adding a strategic allocation of international hedged bonds to the firm's series of target date (Target Retirement) and target risk (LifeStrategy) funds. These funds are prevalent offerings in employer provided plans, where they are often default investment options; in 529 college savings plans; and in individual retirement arrangements.

The new allocation plan adds the Vanguard International Bond Index fund to the portfolio asset mix. This bond fund is hedged to reduce currency risk.

Three fund and four fund portfolios

Prior to the addition of an international bond fund to the target date and target risk funds, the allocation of these balanced portfolios were versions of the very popular three fund portfolio, [1] which consists of three broad asset class index funds:

  • Total U.S. stock market index fund
  • Total international stock index fund
  • Total U.S. bond index fund

The four-fund portfolio that Vanguard is now employing consists of the following broad asset class index funds:

  • Total U.S. stock market index fund
  • Total international stock index fund
  • Total U.S. bond index fund
  • Total international bond index fund

From 2013 - 2015 Vanguard allocated 30% of a portfolio's stock allocation to international stocks and allocated 20% of a portfolio's nominal bond allocation to international bonds. [note 1]

Beginning in 2015 Vanguard increased the international allocations to the four fund portfolios. International stock allocations increased from 30% to 40% of a portfolio's stock allocation. International bonds increased from 20% to 30% of a portfolio's nominal bond allocation. The allocation changes began in the second quarter of 2015 and were completed before year-end.[2] The following charts show the asset class breakdown for four stock/bond allocations.

Notes

  1. The Vanguard Target Retirement Income fund (VTINX)has a strategic 30/70 stock/bond split and adds the Vanguard Short Term Inflation Protected Bond Index Fund to the portfolio mix. As of 04/30/2015, the fixed income asset allocations for this portfolio are:
    Index Fund Allocation
    Total U.S. Bond II 38.1%
    Total International Bond 15.1%
    Short Term TIPs 16.9%

    The 2010 and 2015 target date funds also include an allocation to short term TIPs.

References

  1. The Three Fund Portfolio, forum discussion
  2. 2015 changes to Target Retirement Funds, Q&A, Vanguard Institutional, February 26, 2015. Reviewed 28 February 2015.