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DOMINION ENERGY EMPLOYEES VANGUARD TARGET TRUSTS: YOUR QUESTIONS ANSWERED AND OUR THOUGHTS

| July 02, 2018 |

Vanguard Target Trusts for Dominion Energy Employees: You may have noticed the Vanguard Target Retirement Trust funds within your 401k plan and wondered what they are and how you might use them? Below we will answer these questions and more; give our thoughts, through experience and education, on these “set it and forget it” options in your 401k plan.

Who is Vanguard?

Vanguard is the world’s largest provider of Mutual Funds and currently manages over 5.1 trillion dollars of investments. The company has over 180 US mutual funds and Exchange Traded Funds as well as 280 funds outside the US. Vanguard’s oldest mutual fund was created in 1929 and has always been investor-owned, meaning there are no stockholders to please. Vanguard is owned by funds, which are owned by shareholders of those funds. This allows them to charge lower costs for maintaining and packaging mutual funds, and in turn, those savings are passed down to their investors. Vanguard is built on low-cost investments with an overall average expense ratio of .11%, an astounding 82% lower than the industry average.  

The Vanguard Target Retirement Trusts:

The Vanguard Target Retirement Trusts are an investment option available inside your Dominion Energy 401k plan. Target date funds are pre-packaged investments with a diverse blend of underlying investments tailored to expected retirement dates.   These trusts are subject to risk just like any other investment, and almost all 401k plans use target-date retirement funds or Target Date Trusts as part of the available fund selections.

The general idea is to choose the plan with a date closest to your expected retirement.  An employee with a projected retirement date further in the future would be packaged more aggressively (have more stock-based investments), while an employee who's retiring soon would be packaged more conservatively (have more bond-based or fixed income investments).  As the employee's retirement date gets closer, the blend of underlying investments within the target trust is allocated more conservatively. 

Target date funds could be compared to a “combo-meal” type approach to investing. Rather than picking each investment off the menu a la carte style, employees can choose the target date they feel best represents when they wish to retire.  The recommended allocation is determined and changing as they approach retirement. These funds can be selected as a stand-alone approach or incorporated into a more complicated allocation within your portfolio. As with all 401k investment options, it’s up to you how you want to use them or what you think is best for your future lifestyle.

What are they invested in?

As mentioned above the trust funds are allocated to the following underlying investments with a different percentage blend based on the year that is selected.

What is the cost?

Vanguard Target Retirement Trust’s have an expense ratio of 0.07% based on the fact sheet that is provided on their website.  Understanding the expense ratio is important as most funds have some kind of expense to them. Investopedia describes the expense ratio as, “ the expense ratio, also known as the management expense ratio (MER), measures how much of a fund's assets are used for administrative and other operating expenses. An expense ratio is determined by dividing a fund's operating expenses by the average dollar value of its assets under management (AUM). Operating expenses reduce the fund's assets, thereby reducing the return to investors.”

Read more:Expense Ratiohttps://www.investopedia.com/terms/e/expenseratio.asp#ixzz5KOu5uXzB

Now that we have discussed how the expense ratio works it should be straightforward; the lower the net expense ratio, the more that flows to you instead of to them.  It’s a common misunderstanding that there’s no cost to a 401k as these expense ratios are taken directly from the fund and very difficult to see. It is essential to understand how much you are giving up in fees to be invested in a particular fund

Our Thoughts

If you don't want to select individual funds, don't check your 401k balance often, and you are okay with being aggressive while you’re younger and more conservative as you get older than these Target Date Trusts may suit your needs. With employee's lives being so multifaceted , it’s easy to take advantage of these pre-packaged funds. The costs are the lowest in the industry, they have an allocation model that is consistent with industry standards, and they are available to you.

It is important to note that Vanguard Target Retirement Trusts are available only to tax-qualified plans and their eligible participants. This collective trust is managed by Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc. For more information about Vanguard investments, visit vanguard.com, or call 800-523-1036. Investment objectives, risks, charges, expenses, and other valuable information should be considered carefully before investing.

https://institutional.vanguard.com/VGApp/iip/institutional/csa/investments/aggregateviews/multiAsset

**Variable insurance products, their underlying investment options, mutual funds, and ETFs are sold by prospectus only. Prospectuses contain important information, including fees and expenses. Please read the prospectus carefully before investing or sending money. You should consider the investment objectives, risks, fees and charges of the investment company carefully before investing. Please contact your investment professional or call 888-600-4667 for a prospectus, which contains this and other important information.