Target date funds are one of the simplest ways to invest because they handle the heavy lifting for you. They automatically give you a diversified mix of stocks and bonds based on a target year, typically around when you will turn 65. That means when you are younger, you will be invested more heavily in stocks for growth, and as you get older, the fund gradually shifts toward more bonds for stability. This built-in transition, known as a glide path, helps balance risk over time without you needing to make adjustments.
Another big benefit is that target date funds rebalance themselves. In a DIY portfolio, different investments grow at different rates, which can throw off your intended allocation. Normally, you would have to go in and manually adjust things. But with a target date fund, that process happens automatically behind the scenes, keeping your portfolio aligned with its intended strategy. It is a true “set it and forget it” approach that works especially well for busy professionals who do not want to actively manage their investments.
That said, not all target date funds are created equal. Fees matter, a lot. Low-cost options from firms like Vanguard, Fidelity, and Charles Schwab tend to be solid choices, while higher-cost funds can quietly eat into your returns over time. It is also worth noting that while these funds are great in tax-advantaged accounts like 401(k)s and IRAs, they are usually not the best fit for taxable brokerage accounts. If you are looking for a low-maintenance, straightforward investing strategy, target date funds are a strong option to consider.
Hello. My name is Tyler Scott with White Coat Planning, and Dr. Dahle has asked me to come share a principle with you today. I’m excited to talk about target date funds. Target date funds are the ultimate in “set it and forget it” investing because they do three really useful things for us that require no additional work or management on our part. First, they give us an appropriate asset allocation for our age. By asset allocation, I mean our mix of stocks and bonds. For example, I’m 40 years old, so I invest in the 2050 target date fund in my Vanguard 401(k). The year 2050 is about when I’ll turn 65, so the fund knows I’m roughly 40 years old and gives me an allocation of about 90% stocks and 10% bonds. About two-thirds of the stocks are U.S. and the other third are international, giving me a very reasonable, highly diversified, low-cost mix that’s appropriate for my age.
The second thing target date funds do is adjust our asset allocation automatically as we age. It’s one thing to have a 90/10 stock-to-bond portfolio at age 40, but it’s very different to maintain that same level of risk at age 60. When you’re younger, a market downturn isn’t a big deal because you have time to recover. But as you approach retirement, you want more stability. Target date funds handle this by gradually shifting your allocation over time, moving from something like 90% stocks toward a more balanced mix like 60/40. This gradual shift is called a glide path, and the fund manages it for you automatically.
The third benefit is automatic rebalancing. Over time, different parts of your portfolio will grow at different rates, which can throw off your intended allocation. Normally, you’d have to manually sell some assets and buy others to get back to your target mix. But target date funds handle this for you, regularly rebalancing so you stay aligned with your intended allocation without lifting a finger.
Now that I’ve hopefully sold you on the benefits, let’s talk about a few nuances. These are sometimes called target retirement funds, but I don’t love that term. The date you choose shouldn’t necessarily be based on when you plan to retire, but rather on your expected longevity. Financial planning often assumes you’ll need money until around age 95, so many investors choose a fund aligned with their 65th birthday instead. If you’re investing as a couple with different ages, a simple approach is to use the average age and choose a fund based on that.
Risk tolerance is another factor. If you want to take more risk, you can choose a fund with a later date, which keeps more money in stocks for longer. If you want less risk, choose an earlier date. Also, not all target date funds are created equal. You need to pay attention to what’s inside the fund and especially to the fees, known as the expense ratio. Low-cost providers like Vanguard, Fidelity, and Schwab often offer excellent options, while higher-cost funds can significantly eat into your returns over time.
One underrated benefit of target date funds is simplicity, especially for estate planning. If something happens to you, there’s nothing for a spouse or family member to manage—the fund keeps doing its job automatically. That said, one important caveat: avoid using target date funds in taxable brokerage accounts due to tax inefficiency. They’re best used in tax-advantaged accounts like 401(k)s, 403(b)s, HSAs, IRAs, and even 529s. If you’re looking for a simple, low-stress investing approach, target date funds are a strong option worth considering.
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