Target Retirement Funds
If you’re looking for an ultra easy and effective investment vehicle for your retirement money, you should definitely consider the Vanguard Target Retirement Plans. There are a bunch of them with various dates of when you would retire. For instance, one is called the Vanguard Target Retirement 2040. It starts out with an asset allocation heavily favoring equities and gradually shifts to fixed income as you get closer to the year 2040.
No management required by you — just set up your automatic monthly deposit into this account and you’ll be in good shape for retirement savings with very high probability
Very low cost (0.21% expense ratio) and low underlying turnover since they are index funds (this will reduce the year to year tax hit on your earnings as well as the trading costs incurred by high turnover). This expense ratio is extremely low — the cheapest index funds are about 0.1% while actively managed mutual funds will range from 0.75% to 2%. We believe that investing in low cost funds is vital.
Vanguard handles all the rebalancing and the gradual portfolio shift to a higher percent of fixed income over the years
You lose control over the exact asset allocation — so if you believe that you want more emerging market exposure, you would have to do that with another fund.
If you control your asset allocation and rebalancing through multiple funds, you can boost your returns a bit by being smarter about reducing the tax costs (by using ETFs, leveraging your tax-free retirement accounts, etc.). If you plan to do all your retirement savings through tax-free IRA and 401K accounts, then this point is less important. Take a look at Portfolio Management Complexity for more information