Vanguard to Further Diversify Target Retirement Funds

I just received an email from Vanguard announcing two upcoming changes to the Vanguard Target Retirement Date funds. According to the email, these two changes are designed to further diversify the fixed income component of the Vanguard Target Retirement Date funds. These changes will be completed by the end of the Q2 2013.

These changes further refine the funds' fixed income diversification. International bond fund will provide diversification, while Short-Term TIPS will provide retirees and pre-retirees with improved inflation protection. These changes will not result in any change in the expense ratios or the investment strategy.

Change#1: Adding International Bond Exposure

Vanguard is adding a new fund, Vanguard Total International Bond Index Fund, to each of the Target Retirement Date funds. All Target Date funds will now apportion 20% of their fixed income allocations to the new fund. This international bond component will complement the three other core holdings of the Target Retirement Funds—Vanguard Total Stock Market Index Fund, Vanguard Total International Stock Index Fund, and Vanguard Total Bond Market II Index Fund.

Change#2: Changing TIPS Exposure

Vanguard Treasury Inflation-Protected Securities Fund will be replaced by Vanguard Short-Term Inflation-Protected Securities Index Fund in three Target Retirement Funds: Target Retirement Income Fund, Target Retirement 2010 Fund, and Target Retirement 2015 Fund. Also, Vanguard plans eliminitate allocations to Vanguard Prime Money Market Fund in the Target Retirement Income and Target Retirement 2010 Funds and will be reallocated to the other fixed income components. According to Vanguard, the lower interest-rate sensitivity and better inflation protection of Short-Term Inflation-Protected Securities Index Fund offsets the need to have a cash allocation.