Investment Strategy
The Portfolio invests in two Vanguard stock index funds and two Vanguard bond index funds, resulting in an allocation of 70% of its assets to stocks and 30% of its assets to investment-grade bonds. The percentages of the Portfolio's assets allocated to each Underlying Fund are:
Vanguard Institutional Total Stock Market Index Fund 42%
Vanguard Total International Stock Index Fund 28%
Vanguard Total Bond Market II Index Fund 21%
Vanguard Total International Bond Index Fund 9%
Through its investment in Vanguard Institutional Total Stock Market Index Fund, the Portfolio indirectly invests in primarily large-capitalization U.S. stocks and, to a lesser extent, mid-, small-, and micro-capitalization U.S. stocks. The Fund's target index represents approximately 100% of the investable U.S. stock market. Through its investment in Vanguard Total International Stock Index Fund, the Portfolio indirectly invests in international stocks.
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 Barclays U.S. Aggregate Float Adjusted Index in terms of key risk factors and other characteristics. The Index represents 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. All of the Fund’s investments will be selected through the sampling process and at least 80% of the Fund’s assets will be invested in bonds held in the Index 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 International Bond Index Fund, the Portfolio also 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 Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). This Index 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 exposures.
Investment Risks
Because it invests mainly in stock funds, the Portfolio is primarily subject to stock market risk. Through its bond fund holdings, the Portfolio is subject to moderate levels of interest rate risk, credit risk, income risk, call risk, prepayment risk, and extension risk. The Portfolio also has moderate levels of country/regional risk, currency risk, investment style risk, and emerging markets risk, and low levels of currency hedging risk, nondiversification risk, index sampling risk, liquidity risk, and derivatives risk.
