Investment Strategy
The Commencement Portfolio is the portfolio that all Target Enrollment Portfolios are expected to assume within 4 years after their designated enrollment year. Any money that remains in the Target Enrollment Portfolio you’re invested in would transfer into the Commencement Portfolio, where it can continue to grow tax-free at a static asset allocation. The Commencement Portfolio is also the portfolio that many conservative investors may choose to invest in because it aligns with a low-risk preference, while including a small allocation to equities as a hedge against inflation. The underlying funds are:
Vanguard Short-Term Reserves Account 60.00%
Vanguard Total Bond Market II Index Fund – Institutional Shares 19.88%
Vanguard Total International Bond Index Fund – Institutional Shares 8.52%
Vanguard Total Stock Market Index Fund – Institutional Plus Shares 6.96%
Vanguard Total International Stock Index Fund – Institutional Plus Shares 4.64%
Through its investment in Vanguard Short-Term Reserves Account, the Portfolio indirectly invests in funding agreements issued by one or more insurance companies, synthetic investment contracts (SICs), and shares of Vanguard Federal Money Market Fund. Funding agreements are interest-bearing contracts that are structured to preserve principal and accumulate interest earnings over the life of the investment and generally pay interest at a fixed interest rate and have fixed maturity dates that normally range from 2 to 5 years. If necessary, the Vanguard Short-Term Reserves Account may invest all, or a large portion, of its assets in Vanguard Federal Money Market Fund to limit its exposure to any single issuer or to meet normal liquidity needs. The Vanguard Federal Money Market Fund invests primarily in high-quality, short-term money market instruments issued by the U.S. government and its agencies and instrumentalities.
Through its investment in Vanguard Total Bond Market II Index Fund, the Portfolio also indirectly invests in a broadly diversified collection of securities that, in the aggregate, approximates the Bloomberg U.S. Aggregate Float Adjusted Index in terms of key risk factors and other characteristics. The Index measures the performance of a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States—including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities—all with maturities of more than 1 year. The Fund seeks to maintain a dollar-weighted average maturity consistent with that of the Index, which generally ranges between 5 and 10 years.
Through its investment in Vanguard Total International Bond Index Fund, the Portfolio indirectly invests in government, government agency, corporate, and securitized non-U.S. investment-grade fixed income investments, all issued in currencies other than the U.S. dollar and with maturities of more than 1 year. The Fund employs an indexing investment approach designed to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which provides a broad-based measure of the global, investment-grade, fixed-rate debt markets. To minimize the currency risk associated with investment in bonds denominated in currencies other than the U.S. dollar, the Fund will attempt to hedge its foreign currency exposure. The Fund maintains a dollar-weighted average maturity consistent with that of the Index, which generally ranges between 5 and 10 years.
Through its investment in Vanguard Total Stock Market Index Fund, the Portfolio indirectly employs an indexing investment approach designed to track the performance of the CRSP US Total Market Index, which represents approximately 100% of the investable U.S. stock market and includes large-, mid-, small-, and micro-cap stocks regularly traded on the New York Stock Exchange and Nasdaq. The Fund holds a broadly diversified collection of securities that, in the aggregate, approximates the full Index in terms of key characteristics.
Through its investment in Vanguard Total International Stock Index Fund, the Portfolio indirectly invests in international stocks. The Fund employs an indexing investment approach designed to track the performance of the FTSE Global All Cap ex US Index, a float-adjusted, market-capitalization weighted index designed to measure equity market performance of companies located in developed and emerging markets, excluding the United States. The Fund invests all, or substantially all, of its assets in the common stocks included in its target index.
Investment Risks
The Portfolio is subject to the risks of the underlying bond funds, which include interest rate risk, credit risk, income risk, call risk, prepayment risk, extension risk, country/regional risk, currency and currency hedging risk, nondiversification risk, index-related risks, index sampling risk, derivatives risk, and liquidity risk. The Portfolio is subject to the risks of the underlying stock funds, which include stock market risk, investment style risk, country/regional risk, currency risk, emerging markets risk, special risks of investing in China, index-related risks, index replicating risk, index sampling risk, nondiversification risk, and sector risk.
