Target Retirement 2040
Vanguard Target Retirement 2040 Fund (about 75/25 today, once about 80/20)
Where it stands today
Our calculation, 1926-07 – 2026-09
Growth of $10,000
Where it came from
Vanguard launched its first target-date series on 27 October 2003 (the Income fund and, among the funds still existing, the 2025, 2035 and 2045 funds; the inception table of the current prospectus lists 27 Oct 2003 for the 2035 and 2045 funds). The Target Retirement 2040 Fund (Investor Shares, ticker VFORX) came with the second batch of dated funds on 7 June 2006 (the prospectus inception table gives 6/7/2006 for the 2020, 2030, 2040 and 2050 funds). At launch the fund was 34 years from its target year, so it spent its first decade in the stock-heavy accumulation part of the glide path and is now in the 'transition' part, where stocks are being sold down.
Design. The fund is a fund of four Vanguard index funds (Total Stock Market, Total International Stock, Total Bond Market II, Total International Bond II hedged). It follows a glide path: a high stock share while the investor is young, then a steady fall towards the Income Fund mix, which the dated fund should resemble within seven years after the target year (current prospectus wording). The Vanguard documents say the allocations are aimed at the average investor who plans to retire near the target year and draw the account down over many years. I did not find a named individual designer of the 2003 glide path. The current portfolio managers named in the prospectus are Roger Aliaga-Diaz, Aurelie Denis and Michael Roach of Vanguard Capital Management.
Where 2040 sits on the glide path. In the January 2026 prospectus the targets as of 30 Sep 2025 are: 2050 fund 89.7 percent stocks, 2045 fund 82.2, 2040 fund 74.6, 2035 fund 67.1, 2030 fund 59.5. The 2040 fund therefore holds 44.8 percent US stocks, 29.8 percent foreign stocks, 17.8 percent US bonds and 7.6 percent USD-hedged foreign bonds, with no TIPS. Its actual holdings on 30 Sep 2025 were close to that: 45.6 US stocks, 30.6 foreign stocks, 16.5 US bonds, 6.7 foreign bonds. When it was launched in 2006 its stock share was higher (about the 80s percent; I could not reach the 2007 prospectus table for the 2040 fund itself, see uncertain), and it will keep falling to about 30 percent stocks around 2047.
Idea of the target-date fund. A target-date (life-cycle) fund is one fund that holds a stock/bond mix and shifts it from growth-oriented to conservative as the expected retirement year approaches. Wikipedia credits Donald Luskin and Larry Tint of Wells Fargo Investment Advisors (later Barclays Global Investors) with inventing the product in the early 1990s; the first launch year is given as 1993 or 1994 by different secondary sources. Fidelity followed in 1996 and Vanguard in 2003. The US Pension Protection Act of 2006 and the Department of Labor's final QDIA rule of 24 October 2007 made target-date funds an approved default for 401(k) plans, and they grew into the largest default option in US retirement plans.
2008 and regulation. Funds with a 2010 target date lost on average almost 24 percent in 2008 (SEC press release 2010-103), with individual funds ranging from about -9 to -41 percent, because providers used very different glide paths. This led to a joint SEC/Department of Labor hearing in 2009 and new disclosure proposals in 2010. Vanguard's 2040 fund was by design a more stock-heavy fund at the time, so its 2008 loss was much larger than that of the 2010 funds; I did not find a verified primary figure for the 2040 fund's 2008 return (see uncertain).
What is in it
| US stocks (Vanguard Total Stock Market Index Fund) | 44.8% | Target for the 2040 fund as of 30 Sep 2025 in the Jan 2026 prospectus; actual 30 Sep 2025: 45.6 percent |
| Foreign stocks (Vanguard Total International Stock Index Fund, developed + emerging) | 29.8% | Target; actual 30 Sep 2025: 30.6 percent |
| US fixed income (Vanguard Total Bond Market II Index Fund) | 17.8% | Target; actual 30 Sep 2025: 16.5 percent |
| Foreign fixed income, USD-hedged (Vanguard Total International Bond II Index Fund) | 7.6% | Target; actual 30 Sep 2025: 6.7 percent |
How we model it
| US large companies (S&P 500) | 45% |
| US bond market (aggregate) | 25% |
| Developed markets outside the US | 22% |
| Emerging markets | 8% |
For a euro investor
How to build it with European funds
| Part | Share | Example funds (ISIN) |
|---|---|---|
| US large companies (S&P 500) | 45% | iShares Core S&P 500 UCITS ETF USD (Acc) IE00B5BMR087Vanguard S&P 500 UCITS ETF (USD) Distributing IE00B3XXRP09 |
| US bond market (aggregate) (closest match) | 25% | iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (Acc) IE00BDBRDM35iShares Core Global Aggregate Bond UCITS ETF USD (Dist) IE00B3F81409 |
| Developed markets outside the US (closest match) | 22% | iShares Core MSCI Europe UCITS ETF EUR (Acc) IE00B4K48X80iShares Core MSCI Japan IMI UCITS ETF IE00B4L5YX21 |
| Emerging markets | 8% | iShares Core MSCI Emerging Markets IMI UCITS ETF (Acc) IE00BKM4GZ66 |
The idea
A saver who expects to stop working in about 14 years still has a long horizon but cannot ignore the risk of a crash just before retirement, so the fund keeps about three quarters in stocks and slowly adds bonds. Foreign stocks at about 40 percent of the stock sleeve follow the idea of holding the global equity market rather than only the home market. Vanguard states that investors who want more or less risk can choose a later or earlier target year.
How people buy it
Buy the single fund: Vanguard Target Retirement 2040 Fund Investor Shares (VFORX), expense ratio 0.08 percent in the January 2026 prospectus. The same glide path exists as 401(k) collective trusts and Institutional shares. A DIY copy uses four ETFs: VTI (US stocks), VXUS (foreign stocks), BND (US bonds) and BNDX (hedged foreign bonds) at roughly 45 / 30 / 18 / 7.
Rebalancing as published
The fund rebalances itself to its glide-path weights and gradually reduces stocks as the target year approaches; the investor does nothing. Vanguard reserves the right to change the underlying funds or the weights, and the prospectus says the dated fund should look like the Income Fund within seven years after its target year (and may then be merged into it).
Variants
- Neighbouring dated Vanguard funds (targets as of 30 Sep 2025, stocks/bonds): 2030 59.5/40.5, 2035 67.1/32.9, 2045 82.2/17.8, 2050 89.7/10.4, 2055 and later 90/10; Income 30/70 (models m_tr2030, m_tr2050, m_trincome exist on the site).
- History of the underlying funds: the series had no international bonds until a hedged global ex-US bond index was added from June 2013 (composite index footnote in the fund fact sheets).
- Competing 2040 funds: Fidelity Freedom, T. Rowe Price Retirement, BlackRock LifePath Index; they use different glide paths and in some cases active management.
Criticism
- One glide path for everybody: savings amount, other assets, spending needs and risk tolerance are ignored; Vanguard itself calls the allocation geared to the average investor.
- Still about 75 percent in stocks 14 years before the target year, so a large drawdown is possible close to retirement; the SEC and Department of Labor reacted to this kind of outcome after 2008.
- In 2022 stocks and bonds fell together and the bond part did not cushion: the 2040 fund lost 16.98 percent in calendar 2022 (prospectus bar chart).
- Sequence-of-returns research (Kitces and Pfau, summarised by Early Retirement Now) suggests that cutting stocks to 30 percent after retirement may be the wrong shape for the glide path.
- The allocation is not static: the underlying funds and the glide path were revised several times, so a '2040 fund' bought in 2007 and in 2026 are different portfolios.
Through the eras
| Era | Dates | Total | Per year | Worst drop | S&P 500 |
|---|---|---|---|---|---|
| Roaring Twenties boom | 1926-07 – 1929-08 | +110.8 % | +26.5 % | −4.4 % | +153.7 % |
| Wall Street crash and Great Contraction | 1929-09 – 1932-07 | −65.4 % | −30.5 % | −71.6 % | −78.2 % |
| New Deal recovery | 1932-08 – 1937-02 | +187.3 % | +25.9 % | −21.6 % | +268.7 % |
| Recession within the Depression | 1937-03 – 1938-03 | −37.8 % | −35.5 % | −37.8 % | −49.5 % |
| Rearmament and World War II | 1938-04 – 1945-09 | +146.3 % | +12.8 % | −21.2 % | +205.8 % |
| Postwar expansion | 1945-10 – 1965-12 | +723.9 % | +11.0 % | −18.6 % | +1212.9 % |
| Golden age of the 1950s | 1950-01 – 1959-12 | +280.2 % | +14.3 % | −10.6 % | +438.8 % |
| Go-go years and nifty-fifty | 1966-01 – 1968-12 | +27.0 % | +8.3 % | −11.8 % | +34.0 % |
| The Great Inflation (stagflation) | 1969-01 – 1982-07 | +96.2 % | +5.1 % | −35.8 % | +84.6 % |
| 1973-74 oil shock and bear market | 1973-01 – 1974-12 | −30.8 % | −16.8 % | −35.8 % | −41.7 % |
| Second oil shock and the Volcker disinflation | 1979-01 – 1982-08 | +51.6 % | +12.0 % | −11.4 % | +59.2 % |
| Great bull market in stocks and bonds | 1982-08 – 1999-12 | +1219.2 % | +16.0 % | −23.7 % | +2060.4 % |
| Black Monday | 1987-08 – 1987-12 | −16.8 % | — | −23.7 % | −21.8 % |
| Savings-and-loan crisis and 1990 recession | 1990-07 – 1991-03 | +3.9 % | — | −13.6 % | +7.4 % |
| 1994 bond market massacre | 1994-02 – 1994-12 | −3.3 % | — | −5.6 % | −3.2 % |
| Asian and Russian financial crises | 1997-07 – 1998-10 | +9.0 % | +6.7 % | −12.4 % | +22.4 % |
| Dot-com bubble and crash | 2000-03 – 2002-10 | −25.0 % | −10.2 % | −30.6 % | −37.2 % |
| Recovery and housing boom | 2002-11 – 2007-09 | +111.4 % | +16.4 % | −5.2 % | +97.0 % |
| Global financial crisis | 2007-10 – 2009-03 | −34.3 % | −24.4 % | −40.2 % | −44.7 % |
| The decade after the crisis | 2009-04 – 2019-12 | +227.6 % | +11.7 % | −14.0 % | +411.2 % |
| Fourth-quarter 2018 sell-off | 2018-09 – 2018-12 | −9.7 % | — | −9.7 % | −14.4 % |
| Covid crash and stimulus boom | 2020-02 – 2021-12 | +32.2 % | +15.7 % | −15.1 % | +53.6 % |
| Inflation shock and rate hikes | 2022-01 – 2022-12 | −17.0 % | −17.0 % | −22.8 % | −19.9 % |
Calendar years
Any N-year period
| Any N-year period | Worst | 10 % worse than | Median | 10 % better than | Best |
|---|---|---|---|---|---|
| 1 y (1192) | −51.9 % | −8.3 % | +11.4 % | +27.2 % | +104.4 % |
| 3 y (1168) | −32.0 % | −1.3 % | +9.7 % | +18.0 % | +34.2 % |
| 5 y (1144) | −12.6 % | +2.1 % | +9.3 % | +15.5 % | +26.8 % |
| 10 y (1084) | −2.1 % | +4.4 % | +8.8 % | +13.9 % | +17.0 % |
| 15 y (1024) | +1.3 % | +5.9 % | +9.1 % | +13.6 % | +16.1 % |
| 20 y (964) | +2.8 % | +6.6 % | +9.5 % | +12.6 % | +15.2 % |
| 30 y (844) | +6.8 % | +8.3 % | +9.7 % | +11.2 % | +12.4 % |
How it behaved in history
- 2006 launch. The 2040 fund started on 7 June 2006 together with the 2010, 2020, 2030 and 2050 funds, so the first dated Vanguard fund series for far-away target years was in place before the 2008 crisis. personal1.vanguard.com
- 2008 global financial crisis. Target-date funds as a class were hit hard: 2010-dated funds lost about 24 percent on average. The sister 2050 fund (about 90 percent stocks at the time) lost 34.62 percent in 2008 and gained 28.31 percent in 2009 according to SEC XBRL data; the 2040 fund held fewer stocks than the 2050 fund, so its loss was smaller, but I have no verified figure for it. www.sec.gov
- 2013 index change. The fund's benchmark moved in 2013 to FTSE Global All Cap ex US and a USD-hedged global ex-US bond index was added, i.e. international bonds entered the glide path. workplace.vanguard.com
- 2020 COVID crash. Worst quarter of the decade (-18.25 percent in Q1 2020) followed by the best quarter (+17.29 percent in Q2 2020). personal1.vanguard.com
- 2022 stocks and bonds fall together. -16.98 percent for the calendar year; the 25 percent bond sleeve did not offset the stock decline. personal1.vanguard.com
Published results (by others)
- Calendar-year total returns of the Investor Shares (read from the prospectus bar chart; year-to-column placement of the chart values is mine, based on column positions) (2016-2025): 2016 8.73%, 2017 20.71%, 2018 -7.32%, 2019 23.86%, 2020 15.47%, 2021 14.56%, 2022 -16.98%, 2023 18.34%, 2024 12.88%, 2025 18.76% personal1.vanguard.com
- Average annual total return, Investor Shares, before taxes (composite benchmark in brackets) (to 31 Dec 2025): 1 year 18.76% (18.77%), 5 years 8.57% (8.82%), 10 years 10.13% (10.42%) personal1.vanguard.com
- Best and worst calendar quarters in the 10 years to 2025 (2016-2025): highest +17.29% (quarter ended 30 Jun 2020), lowest -18.25% (quarter ended 31 Mar 2020) personal1.vanguard.com
- Funds with a 2010 target date lost on average almost 24% in 2008 (range about -9% to -41%) because glide paths differed (2008): about -24% average for 2010 funds www.sec.gov
What we could not verify
- The 3:1 split of foreign stocks between developed and emerging markets is my estimate, not a Vanguard figure.
- The 2040 fund's composition at launch and in the 2007 prospectus was not retrieved (the SEC site blocked automated download from this machine); statements about 'higher stock share in 2006' are therefore inferred from the glide path, not read from the 2040 fund's own table.
- No verified 2008 or 2009 calendar-year return for the 2040 fund was found; a third-party site (totalrealreturns.com) shows about -34.5 percent for 2008 but its data were flagged as unreliable for other years and are not used.
- The assignment of the ten bar-chart values in the prospectus to calendar years was done by column position in the extracted text; the 2020 and 2021 values (15.47, 14.56) are the least certain.
- First target-date launch year: 1993 versus 1994 (secondary sources disagree).
- Name of the person who designed Vanguard's original glide path was not found.
Sources
- personal1.vanguard.com
https://personal1.vanguard.com/pub/Pdf/p308.pdf - workplace.vanguard.com
https://workplace.vanguard.com/iippdf/pdfs/FS699.pdf - www.sec.gov
https://www.sec.gov/Archives/edgar/data/752177/000093247114002564/R151.htm - www.sec.gov
https://www.sec.gov/news/press/2010/2010-103.htm - en.wikipedia.org
https://en.wikipedia.org/wiki/Target_date_fund - www.planadviser.com
https://www.planadviser.com/vanguard-target-date-series-turns-20/ - ccbjournal.com
https://ccbjournal.com/articles/department-labor-issues-final-regulations-qualified-default-investment-alternatives - earlyretirementnow.com
https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/
Calculated on historical data. Past results do not predict the future. Models before the 1990s use stand-ins for classes that had no index yet; fees, taxes and fund costs are not included. This is mathematics, not an investment recommendation.