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

The former 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

Vanguard allocates 30% of a portfolio's stock allocation to international stocks and allocates 20% of a portfolio's bond allocation to international bonds. The table below shows the portfolio allocations for four stock/bond allocation splits. [footnotes 1]

Notes

  1. The Vanguard Target Retirement Income fund has a strategic 30/70 stock/bond split and adds the Vanguard Short Term Inflation Protected Bond Index Fund to the portfolio mix, The fixed income asset allocations for this portfolio are:
    Index Fund Allocation
    Total U.S. Bond II 39.2%
    Total International Bond 14.0%
    Short Term TIPs 16.8%

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

References

  1. The Three Fund Portfolio, forum discussion