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How to Pick a Target-Date Fund

Target-date funds have become a staple of many 401(k)s and individual retirement accounts (IRAs). According to BrightScope, 21% of all assets in 401(k) plans were in target-date funds in 2016—up from 3% just a decade earlier. More broadly, total assets under management in target-date funds increased from roughly $7 billion in 2000 to nearly $1.4 trillion1 in 2018.

The appeal is understandable: Target-date, or age-based, funds offer an all-in-one mix of stocks, bonds, and cash that grows steadily more conservative over time, with some funds reaching their most conservative mix at their target date and others downshifting their asset mix more gradually. Their set-it-and-forget-it style makes them an attractive option for people who don’t want to be actively involved in picking assets or adjusting their allocation over time.

Of course, this approach may not be right for all investors. If you’re disciplined about rebalancing your portfolio each year and confident in your ability to maintain an appropriately diverse portfolio, for example, subcontracting out your investment decisions may feel unsatisfying.

Even when a more-automated, hands-off approach is called for, there are important considerations in choosing a fund that’s right for you.

Look under the hood

Despite their relative simplicity, target-date funds can vary widely in their asset allocation, management approach, and more. When comparing funds, pay particular attention to:

  • Fees: All target-date funds generally involve some degree of human judgment in the selection of investments, but some are more actively managed than others. Those made up primarily of index funds, for example, may offer net expense ratios as low as fractions of a percentage point. Actively managed funds, which have professionals making more judgment calls about which assets to include, can have net expense ratios above 2%. Data from Morningstar shows that lower-fee funds have proven more popular in recent years. However, actively managed funds may be more responsive to market fluctuations.2
  • Glide path: This is the term for how a fund’s asset allocations change over time. For example, some target-date funds move heavily into bonds and cash before the fund’s target date, while others continue to hold sizable stock allocations well after that date (see “Is ‘to’ or ‘through’ right for you?” below). Different funds may also have different allocation models. For example, the stock allocations among the half-dozen largest funds for those with a target date in 2020 range from 33% to 55%, according to Morningstar.3

    Compare different allocation strategies before settling on one that matches your own appetite for returns and risk. In particular, look at a fund’s asset mix at your current age, at your anticipated retirement age, and at 10 years past your anticipated retirement age. If your main concern is outliving your savings, you may be happier with a fund that maintains a higher allocation to stocks at and beyond the target date. If your main concern is protecting your principal, you may want a fund that maintains relatively little allocation to stocks at and through retirement.

    Finally, if the target-date funds available in your employer’s 401(k) are too conservative or too aggressive for your tastes, consider a fund that’s dated after or before your planned retirement date. For instance, if you’re planning to retire in 2030 but the available target 2030 fund is too conservative for you, look at the 2035 or 2040 fund in the same series. Conversely, if it’s too aggressive, try a fund with an earlier date, such as 2020 or 2025.

Is “to” or “through” right for you?

All target-date funds grow more conservative over time. However, “to” funds reach their most conservative allocation at their target date, while “through” funds continue to adjust their allocations well beyond that date.

The examples are hypothetical and for illustrative purposes only.


  • Holdings: While some funds stick to a basic mix of stocks, bonds, and cash, others incorporate investments like commodities and real estate investment trusts (REITs). In general, broader is better. That’s because the more asset types you have, the less likely they’ll all move in the same direction at the same time, which can help mitigate your losses during a downturn. That said, Schwab recommends that even the most aggressive investor’s portfolio contain a total of no more than 10% commodities, REITs, and other so-called real assets.

“Core and explore”

Alternatively, if you prefer to keep a hand in overseeing your investments, consider a so-called core-and-explore approach, in which most of your retirement portfolio remains in a target-date fund, with a portion left over for other investments you can manage yourself. If you decide to pursue this approach, take a holistic view of all your investments to ensure they’re complementary and collectively in line with your target asset allocation.

In short, target-date funds offer a simple, one-stop solution for many retirees. Simple, however, doesn’t always mean easy. You’ll still need to do your homework to find the right fund for you—and to stay on top of your overall progress toward your goals.

1Charles Schwab Investment Advisory, Inc. Data from 12/31/2000 through 12/31/2018. | 2Jeff Holt, “A Brief Overview of How the Target-Date Fund Landscape is Evolving,”, 05/09/2019. | 3Randall Smith, “What the Market Selloff Revealed About Target-Date Funds,”, 04/05/2020.

What You Can Do Next

See how Schwab Target Date Funds work hard for your retirement.

Important Disclosures

Investors should consider carefully information contained in the prospectus or, if available, the summary prospectus, including investment objectives, risks, charges, and expenses. Please read it carefully before investing.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Diversification, asset allocation, and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets.

Performance may be affected by risks associated with non-diversification, including investments in specific countries or sectors. Additional risks may also include, but are not limited to, investments in foreign securities, especially emerging markets, real estate investment trusts (REITs), fixed income, small capitalization securities, and commodities. Each individual investor should consider these risks carefully before investing in a particular security or strategy.

Investing involves risk, including loss of principal.


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