Should You Use a Target Date Fund or Build Your Own 401(k) Portfolio?

Target-date funds are often described as a “set it and forget it” option—a single fund that automatically shifts its mix of stocks and bonds as you get closer to retirement. This hands-off approach can be appealing, but it’s not for everyone. Whether a target-date fund is right for you depends on how much simplicity you want, whether you’re comfortable with the fund’s built-in assumptions, and how your other accounts and goals work together.

What a target‑date fund is

A target-date fund (TDF) is like a one-stop investment shop, usually made up of a mix of stock and bond funds. It’s built around the year you plan to retire—say, 2035 or 2050. When you’re far from retirement, the fund leans heavily toward stocks to help your savings grow. As you get closer to your target date, the fund automatically shifts toward more bonds and cash-like investments, becoming more conservative as you approach and move past retirement.

Most 401(k) plans use a target-date fund series as the default investment. If you don’t make a conscious choice, you’re automatically placed into a fund based on your age. Professional investment teams manage these funds—they set the fund’s mix of investments and handle all the rebalancing for you.

Possible benefits of using a target‑date fund

Target-date funds are helpful if you don’t want to spend time building or monitoring your own investment mix. They give you instant diversification in a single fund and automatically adjust over time. This hands-off approach may help you avoid emotional decisions or forgetting to make changes as the years go by.

Because target-date funds offer a simple, age-based path into the market, they’re now the most common investment in many 401(k) plans. For someone just getting started—especially if you have one main retirement account, a long time before retirement, and a moderate approach to risk—a single target-date fund can be a practical, low-maintenance choice.

Important constraints and risks

But target-date funds have their limitations. They make decisions based only on your expected retirement year—not your full financial picture. They don’t know how much you’re saving, if you have other accounts or a pension, your health, your spending plans, or how comfortable you are with market ups and downs. Their “one-size-fits-many” approach might not be the right match for you.

Different companies design their target-date funds differently. Two funds with the same target year—like 2030 or 2040—might have very different mixes of stocks and bonds. Some funds stay riskier for longer, while others become more conservative earlier. And because target-date funds invest in other funds, you pay fees for both the TDF itself and its underlying investments. Fees vary, and over time, they can significantly impact your results.

When a customized approach may be better

If your financial situation is more complex—maybe you have significant savings outside your 401(k), a variable income, a pension, or a much different comfort with risk than others your age—a custom investment mix might suit you better than a single target-date fund. Managed accounts and customized models can take your goals, timeline, and other assets into account, though they may require more involvement or come with extra fees.

Personalizing your approach can also make sense if you’re nearing retirement and want either more protection or more growth than your plan’s target-date fund offers. Just be careful not to mix several target-date funds or combine a TDF with lots of other funds; doing so might undo the fund’s built-in balance of risk and return. It’s a good idea to frequently review how all your investments work together.

Questions to discuss with a professional

Target-date funds are just one option, so it can help to talk through questions like these with a financial professional or someone from your retirement plan’s education team:

• Does the stock‑bond mix of the TDF for my retirement year match my comfort level and my anticipated retirement age?
• How do my other accounts (IRAs, taxable investments, pensions) and my savings rate interact with what the TDF is doing in my 401(k)?
• Given my goals, would a single TDF, a customized allocation, or a combination approach make the most sense, and what are the comparative costs and risks?

These questions aren’t recommendations, but they can help you figure out if a target-date fund is a good starting point, a long-term solution, or just one piece of your overall retirement game plan.

Disclosure

This article is for informational and educational purposes only and does not constitute investment, tax, or legal advice or a recommendation to buy, sell, or hold any security, fund, or investment strategy. The information is general in nature and does not take into account the specific investment objectives, financial situation, or particular needs of any individual; decisions about using target‑date funds or other investments should be made based on your circumstances and, where appropriate, in consultation with a qualified financial professional. Investing involves risk, including the possible loss of principal, and there is no guarantee that any target‑date fund or asset‑allocation approach will achieve its objectives; diversification and automatic rebalancing do not ensure a profit or protect against losses in declining markets. Target‑date funds with the same target year may differ significantly in asset allocation, risk level, and fees, and past performance is not a guarantee or reliable indicator of future results. References to third‑party organizations, websites, or publications are provided for general information only and do not constitute endorsements or approvals of any products, services, or views.

Sources
Fidelity – What Is a Target‑Date Fund?: https://www.fidelity.com/learning-center/personal-finance/what-is-a-target-date-fund​
Bankrate – Target‑Date Funds: What They Are, How They Work: https://www.bankrate.com/retirement/target-date-funds-pros-and-cons/​
Investopedia – Understanding Target‑Date Funds: Benefits and Drawbacks: https://www.investopedia.com/articles/retirement/07/life_cycle.asp​
CNBC – Are Target‑Date Funds the Most Popular 401(k) Investment Right for You?: https://www.cnbc.com/2025/01/06/are-target-date-funds-the-most-popular-401k-investment-right-for-you.html​
Greenbush Financial – What’s a Target Date Fund and Should I Invest in It?: https://www.greenbushfinancial.com/all-blogs/target-date-fund-investing​
Flat Fee Advisors – Should I Invest in a Target Date Fund? Weighing the Pros and Cons: https://www.flatfeeadvisors.org/should-i-invest-in-a-target-date-fund-weighing-the-pros-and-cons​
PAX Financial Group – Target Date Fund vs. Custom Planning: What Are They and Which Is Better?: https://paxfinancialgroup.com/financial-advisor-san-antonio/target-date-fund-vs-custom-planning-what-are-they-and-which-is-better​
Multnomah Group – 8 Guidelines from the DOL on Target Date Funds: https://blog.multnomahgroup.com/forward-thinking/target-date-fund-dol-guidelines​
CAPTRUST – Checklist for DOL Target Date Tips: https://www.captrust.com/wp-content/uploads/2019/05/tdftips.pdf​
Artesys – Target Date Funds vs. Managed Accounts: Which is Better for Your Retirement Plan?: https://artesysonline.com/target-date-funds-vs-managed-accounts-which-is-better-for-your-retirement-plan/​

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