| If I had a friend or relative who wanted to invest but didn't have the time or inclination to become an expert on the subject, I would strongly encourage an investment in one of these funds, which currently go out as far as 2070. How about once retirement is reached? Is there a fund that offers an equally simple way to generate income while protecting against the ravages of inflation? Indeed, there is. It's the Vanguard Target Retirement Income Fund (VTINX). And while it has a pretty conservative asset allocation, I think most readers will be surprised at its construction. The fund's goal is to provide current income and some capital appreciation by investing in Vanguard index funds. Its current asset allocation is approximately 38% in U.S. bonds, 16% in international bonds, 17% in short-term inflation-protected securities, 17% in U.S. stocks, and 12% in international stocks. In other words, the fund has approximately 70% in global bonds and 30% in global stocks. Some readers will be surprised to find that the fund has nearly a third of its assets in equities. But there are good reasons for this. The fund is classified as "conservative to moderate" risk. It is designed for investors with a medium-term (4-to-10-year) investment horizon. Portfolios that have some allocation to stocks are less risky over the medium term than funds that invest solely in bonds. Why? Because one of the biggest threats to financial security - over the medium-to-long term - is inflation. During inflationary times, companies can raise prices to protect earnings. (And, ultimately, share prices.) But bonds pay a fixed interest rate. As consumer prices rise, those fixed rates are worth less in real terms, so bond prices decline (at least temporarily). The Vanguard Retirement Income Fund is designed for investors who want income but have a low tolerance for short-term price fluctuations. And it performed strongly against its peer-group average during not one but four severe market downturns since it was introduced in October 2003. The goal is to sleep at night even when the market outlook is anything but sunny. As you'd expect, the fund's total return has been modest. It has returned just over 5% annually since its inception in October 2003. This still puts it among the top-performing funds in its category. And a primary reason is the expense ratio. Vanguard is a non-profit organization. The shareholders own the company. Therefore, all its funds are run at cost. Vanguard has cut fees more than 2,000 times since 1975. The most recent fee reduction, announced in February, was the largest in the company's history, affecting 87 funds. The annual expense ratio of Vanguard's Target Retirement Income fund is .08%. (Just 80 cents a year on every $1,000.) The average expense ratio of similar funds is 0.7%, almost nine times higher! The difference between 0.7% and .08% makes a huge difference over time. For example, $100,000 invested in the fund in 2004 - with dividends reinvested - was worth $265,329 at the end of 2024. Another fund that earned the same return but charged the typical 0.7% in expenses would be worth $30,000 less. Costs matter. A lot. Especially when investing for income, where returns are lower. Again, this is not necessarily the best or most sophisticated thing you could do with the income portion of your retirement portfolio. You can, for example, take greater risks in credit quality or duration and earn higher yields. Or you could lighten your equity exposure and have less risk. But every investor must choose some combination of risk and reward at a reasonable cost. Vanguard offers solutions that aren't perfect, but that offer investors a simple path to their most important investment goals. The biggest challenge for participants is that they will need to stick with the program even when the skies look stormy. There will be no one to hold your hand and implore you to stick with the program when the next crisis hits. (And that's assuming that your paid advisor would. Many earn greater fees - or try to justify them - by moving money around on virtually any pretext.) On the plus side, you will not pay the high fees that hand-holders charge. As with most things in life, success boils down to commitment and personal responsibility. Unforeseen national and international crises are bound to arise in the future. And - as has always been the case in the past - those crises will eventually fade. Those tempted to abandon their investment strategy during difficult times should heed the words of Benjamin Franklin: "Those who would give up essential liberty, to purchase a little temporary safety, deserve neither liberty nor safety." He was talking about political freedom. But the same principle holds true for financial freedom. Long-term financial success is not about timing the market. It's about time in the market. So don't let the merchants of doom convince you to bail out. Good investing, Alex | 
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