Investors have $4.8 trillion in target-date funds—how to choose one

When you’re young and hoping to save money, the portfolio is tilted toward high-growth stocks. When you get older and want to preserve your savings, the portfolio shifts toward less volatile bonds and cash.

No two target date funds are exactly the same. Funds from different families have different asset mixes that change differently over time. They will also charge different fees.

If you hold a target date fund, such as a 401(k), in a workplace plan, you may only have one fund family to choose from. Even then, it can be helpful to dig into the background of the business and review the portfolio with a financial professional, experts say. In general, it’s a good idea to talk to a financial professional before making any changes to your portfolio.

However, if you are investing through an individual retirement account or brokerage account, you should be especially careful because you can invest in almost any fund. Here are three factors financial professionals say you should pay attention to beyond the year you hope to retire.

1. Basic investments

Target date funds are called “funds of funds.” This means there is a list of mutual funds within your target date fund that make up the final portfolio. At a very high level, it’s important to know what type of funds these are so you know exactly what you’re paying for, says Joon Um, CFP at financial firm Secure Tax & Accounting.

“Some use low-cost index funds, while others are more actively managed,” he says.

It’s also smart to familiarize yourself with the different stock and bond “sweets” the portfolio holds and make sure you’re comfortable with the amount of each you invest when buying, says Crystal Cox, CFP and senior vice president at Wealthspire Advisors.

“What’s the split between stocks and bonds? 60-40? 70-30? You have to ask yourself what’s right for you,” he says. “Same as US and international [stocks]etc. and so on.”

Generally, you can find a breakdown of what a fund has by downloading the prospectus from the fund company’s website or by searching for the fund on investment research sites such as Morningstar.

2. ‘The way to stay’

Keep in mind that your portfolio mix will change from the date you purchase the fund to the year you plan to retire, and in some cases, the year you plan to retire. This planned change in the fund’s asset mix is ​​known as the “glide path,” and you can usually see it represented as a chart in any target date fund’s prospectus.

The most “aggressive” funds tend to hold higher percentages of stocks for longer periods of time, while “conservative” funds tend to lean towards bonds.

Although many glide paths look similar, there can be big differences from fund to fund. At the beginning of the path — when the portfolio is decades away from the date specified in the fund’s name and is at its most aggressive — many funds hold more than 90% of the portfolio in stocks, according to Morningstar’s 2026 target date fund landscape report. But some more stable funds hold closer to 50%.

Erika Safran, CFP at Safran Wealth Advisors, says how you want your portfolio to behave over time will depend on how comfortable you are with market volatility and how you plan to use your money in retirement; Both issues are worth discussing with a professional.

“It’s a matter of how much risk I want to take and how much risk I should take,” he says.

3. Expenses

When choosing a target date fund (or any type of mutual fund), Bill Shafransky, CFP at Moneco Advisors, says it’s important to pay attention to the expense ratio, the annual fee the fund company charges for managing the portfolio. That’s probably more important than looking for funds that have historically delivered the highest returns, he says.

“Don’t get me wrong, it’s great to look at past performance, but there’s a big difference in how much of that return you can get when you compare funds with a 0.68% expense ratio versus a 0.35% expense ratio,” he says.

On average, target date funds come with an expense ratio of 0.27%, according to Morningstar.

So how much difference does it make? Consider an investor who invests $5,000 in a target date fund and invests another $5,000 per year for 40 years, earning an annual return of 8%. If this investor chooses a fund with a 0.35% expense ratio, he or she will pay approximately $140,000 in fees and generate $1.37 million, according to NerdWallet’s mutual fund fee calculator.

If the same investor had paid 0.68% of annual expenses, they would have had approximately $1.25 million with $260,000 in fees.