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The following article by Dan Wiener chief executive of Boston’s Adviser Investments was taken from the most recent edition of his newsletter The Independent Adviser For Vanguard Investors. As I have mentioned in previous posts Dan is the foremost authority on Vanguard funds.

His article explores how you can create a better life-cycle fund than Vanguard’s Target Retirement Income Fund. Vanguard’s fund is designed for people currently in retirement who need to draw income. It is a fund consisting of other funds. Dan provides an alternative selection that produces higher returns with less risk.

By Dan Wiener

When I’ve looked at life-cycle funds in the past, I’ve pointed out that an income-oriented portfolio is one place where I think investors really can do better without much work or the confusion of sorting out the different choices Vanguard throws at us.

If I were to wipe the slate clean and start today, I might make some slightly different decisions, but so that I’m not accused of moving the target, here is a quick review of what I originally proposed.

The table below shows the funds I suggested years ago, with no changes. Remember, the exercise then, as now, was to build a portfolio with an allocation that looked just like Vanguard Target Retirement Income (VTNIX), but using better funds.

I’m earning a higher yield with Vanguard GNMA, which has outperformed Vanguard Total Bond Market (BND ) over time. I also replaced the money market with a bond fund, a strategy I have consistently recommended and practiced throughout the years.

And for stock exposure, I selected a large-cap fund, Vanguard Growth & Income (VQNPX) and added a high-yield, smaller-stock fund, Convertible Securities (VCVSX). That’s not a tough portfolio to build, and the returns have been higher. In lieu of indexing the foreign markets, I put 10% of my alternative’s assets into Vanguard Global Equity (VHGEX).

In the chart below, I show you how this allocation would have done versus Target Retirement Income. With a little effort, I was able to produce a portfolio that generates a higher yield with lower risk and higher returns.

If I were to make the allocations today, I’d substitute Vanguard Dividend Growth (VDIGX) for Vanguard Growth & Income and probably use Vanguard Total World Stock Index (VTWSX) instead of Vanguard Global Equity given the active fund’s lagging performance and constantly growing team of managers.