Table of Contents
Introduction
Investing can be complicated, especially for the uninitiated in finance. Due to the numerous opportunities available, it is not easy to identify the right ones for your goals and risk tolerance. One of the investment vehicles that have recently become popular is Vanguard LifeStrategy Funds. In this article, we will define what these funds are, how they work, and why they may be the right choice to help you grow your financial portfolio.
What are Vanguard LifeStrategy Funds?
Vanguard LifeStrategy Funds are a family of all-in-one investment products offered by Vanguard, one of the biggest investment managers in the world. These funds are intended to offer a diversified portfolio that is consistent with your investment time horizon and risk appetite. They are built on a mix of low-cost Vanguard index funds that aim to mimic certain sectors of the market.
There are four LifeStrategy Funds available, and each one is aimed at a specific risk profile:
- Conservative Growth Fund: This fund is mainly oriented towards bonds and has a low exposure to stocks, thus it is suitable for individuals who want to minimize risk.
- Moderate Growth Fund: This fund is balanced between stocks and bonds and is most appropriate for individuals who are comfortable with some risk.
- Growth Fund: This fund is more oriented towards stocks and has a lower exposure to bonds than the others, thus it is suitable for individuals who are more comfortable with risk.
- Aggressive Growth Fund: This fund has the highest stock exposure and the least amount of bond exposure, making it suitable for the risky investor who wants the most growth.
How do Vanguard LifeStrategy Funds work?
These funds are designed to offer a diversified investment portfolio that triggers the rollover of its asset distribution with the passage of time. When you invest in a LifeStrategy Fund, your money is combined with that of other investors to purchase shares of different underlying Vanguard index funds. For example, the Moderate Growth Fund targets to invest 60% of the assets in stocks and 40% in bonds. Due to market movements, the actual allocation may differ from the target, which forces Vanguard to make regular adjustments to the fund’s assets to bring them back to the target fund’s objectives—this makes it easier for investors to stay on track.
Why should I consider Vanguard LifeStrategy Funds?
There are several good reasons to consider Vanguard LifeStrategy Funds:
- Instant Diversification: These funds provide an easy way to diversify your investments across different asset classes in order to minimize risks. You can invest in different sectors and areas of the world just by selecting a LifeStrategy Fund.
- Low Costs: Vanguard is a leading provider of low-cost investment products, and LifeStrategy Funds are no exception. Higher expense ratios are great for financial states in the long run, especially when compared with actively managed funds.
- Automatic Balancing: Investing in these funds means that you benefit from the funds being rebalanced for you. The company watches the fund’s asset allocation and, therefore, does not require you to do it, which is a great way to manage your investments with the least amount of effort.
- Flexibility: There are four different funds to choose from depending on your risk appetite – conservative, moderate or aggressive.
A Look at Performance
Let’s have a look at the performance of Vanguard LifeStrategy Funds over the last decade to get a better idea of the possibilities available. In the period January 2011 to December 2020, the Growth Fund that was more oriented towards stocks had an annual average return of approximately 9.5%. On the other hand, the Conservative Growth Fund that is dominated by bonds had an average annual return of about 6.2%. The numbers presented here are encouraging but it should be noted that past performance does not equal future performance.
Conclusion
Vanguard LifeStrategy Funds make the investment process easier with their globally diversified portfolios, low expenses and the ability to automatically rebalance the portfolio, which could be attractive to those looking for growth over the years. This means that when investing here, you are able to take advantage of Vanguard’s index funds and at the same time stand to gain high returns in the future.
It is important to note that it is crucial to assess your financial objectives and tolerance to risk before making any decision. A financial advisor would be able to give more specific guidance that is related to your situation.
