Vanguard Implied Asset Allocation Recommendations

Table of Contents

Vanguard is one of the more predominant advocates of investing internationally, explicitly recommending that investors:

Hold about 40% of their stock allocation in international stocks, and
Hold about 30% of their bond allocation in international bonds

They’re also slightly more aggressive than simplistic rules like “invest \( (120 - \text{age})\% \) of your portfolio in stocks.”

Indeed, their target date retirement funds have gradually included more equities and more international exposure over time, so I was curious how well they follow their own recommendations.

Vanguard’s Target Date Glide Path
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Vanguard’s target date fund documentation shows this glide path for asset allocation across different ages:

Vanguard's glide path maintains 90% stocks until age 40, then gradually reduces to 30% by age 72, filling the gap
with bonds and adding short-term TIPS after age 60. — Vanguard’s official target date fund glide path. Source: Vanguard.

And if we plot out the actual allocations from their various target date funds (roughly targeting investors every 5 years between ages 20-75), they’re pretty close!

Note: I have changed the order of TIPS (Treasury Inflation-Protected Securities) to group them with the other U.S. bonds.

The actual fund allocations closely match Vanguard's published glide path with only minor variations. — Actual allocations across Vanguard’s Target Retirement Funds

We can extract a few interesting insights from this.

Actual allocation strategy
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Stocks vs. bonds allocation
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As expected, Vanguard follows their published glide path for the stocks/bonds split.

The portfolios start at 90% stocks until age 40 and then fall to 30% stocks in retirement.

Vanguard maintains 90% stock allocation until age 40, then reduces linearly to 30% by age 75, holding steady thereafter. — Their stock allocation is more aggressive than traditional formulas, especially during peak earning years

Domestic vs. international equities
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True to their recommendations, Vanguard allocates about 40% of equity exposure to international stocks across all age groups.

Vanguard maintains approximately 60% domestic and 40% international equity allocation across all age groups. — A classic 60/40 domestic/international equity split

Domestic vs. international bonds
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Similarly, Vanguard uses their 30% international bond allocation recommendation throughout the entire glide path.

Bond holdings consistently maintain approximately 70% domestic and 30% international allocation across all age
groups. — Another flat 70/30 domestic/international split for bonds

TIPS vs. traditional bonds
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This split is a bit more interesting.

There’s much less public discourse over how much of your portfolio should be in TIPS over conventional investment-grade corporate bonds.

In Vanguard’s case, they rapidly phase them in at age 60.

They shift 20% of domestic bond allocation to TIPS by age 65,
Then increase to ~30% TIPS by age 75

Domestic bonds are exclusively investment-grade until age 60, then roughly follow a cubic curve to reach 30% TIPS
allocation by age 75. — Vanguard adds in a sizable inflation hedge as you get into retirement age

Reconstructing a smoother glide path
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The real data is obviously noisy, especially given the recent market volatility.

Using the patterns observed above, I’ve reconstructed a smoother “Vanguard-style” glide path for every age:

A reconstructed, smoother version of Vanguard's glide path using smooth linear and cubic curves. — Much smoother!

This data is available in reconstructed-glide-path-approximation.csv if you want to take a glance at the exact numbers around your age bracket.

Vanguard Implied Asset Allocation Recommendations

Vanguard’s Target Date Glide Path
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