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Are Target Date Funds Good for Beginners? A Simple Guide for Generation XY

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One image of a fast food meal and then other image of a person customizing their meal at a buffet. Target date funds guide for generation XY

Are Target Date Funds Good for Beginners? A Simple Guide for Generation XY

Saving for retirement can feel overwhelming, especially if you’re dealing with work, family, and everything else life throws at you. If you’re part of Generation XY, chances are you don’t have hours to research investments.

That’s where target date funds come in.

But are target date funds good for beginners? Let’s break it down in plain English so you can decide if they apply to your situation.

 

What Is a Target Date Fund?

A target date fund is a “set it and forget it” investment designed for retirement.

You pick a fund based on the year you expect to retire. For example, if you plan to retire around 2055, you’d choose a 2055 fund.

From there, the fund automatically adjusts your investments over time. Dive deeper into the basics of a target date fund here.

 

How Target Date Funds Actually Work

Target date funds follow something called a glide path. That just means the mix of investments changes as you get closer to retirement.

Here’s a simple way to think about it:

  • Early years (20–30 years from retirement):
    • About 85% to 90% stocks
    • About 10% to 15% bonds
  • Mid-career (10–20 years out):
    • Around 70% to 80% stocks
    • Around 20% to 30% bonds
  • Near retirement:
    • Around 50% to 60% stocks
    • Around 40% to 50% bonds
  • In retirement:
    • Some funds still hold 30% to 50% in stocks for growth

The change happens automatically. You don’t have to rebalance anything yourself. Take a look at this chart here to get a visual representation of a glide path.

 

Understanding Costs

Target date funds are convenient, but how do the fees work?

  • There are two layers of fees to understand when investing in target date funds. First, there is the expense ratio for the target date fund itself, which usually ranges from 0.08% to 0.9%.
  • Since most target date funds invest in a collection of other funds (a fund of funds), they also incur expense ratios from those underlying funds, which can range from about 0.02% to 0.8%. The good news is that investors do not usually pay both fees separately. It used to be more common to pay both fees, but nowadays you usually pay only one. Instead, the total expense ratio you see already includes both the target-date fund’s fee and the underlying funds’ fees.
  • Compared with a simple index fund portfolio, which often would have expense ratios of 0.02% to 0.3%, target date funds may sometimes be a bit pricier.

Use this tool to analyze various funds here.

 

Related: How Does a 401(k) Grow? The 6 Ways

How Popular Are Target Date Funds?

Target date funds aren’t niche anymore. They’re widely used:

  • About 85%–90% of 401(k) plans offer them
  • Roughly 50%+ of 401(k) participants use a target date fund
  • Among younger investors, usage is even higher

A major reason for the number of investors in target-date funds is that companies often automatically enroll employees in the fund when they start a retirement plan, unless the participant chooses otherwise.

 

Benefits of Target Date Funds

  1. Simple and Hands-Off

You pick one fund, and you’re done.

No need to manage multiple investments.

  1. Built-In Diversification

A single target date fund can hold:

  • will hold various types of mutual funds or etfs
  • structure the fund to include different asset allocation categories such as stocks, bonds, international, government and corporate.

This spreads out your risk automatically.

  1. Adjusts For You

The target-date fund will move to a more conservative allocation as you get closer to retirement.

  • No knowledge is needed by the individual

Downsides to Know About

  1. Less Control = Less Customization

You don’t get to choose:

  • Exact stock vs bond percentages
  • Specific investments
  • Timing of changes

Your financial goals and your financial situation are unique to you. Life can change in an instant for reasons such as getting married, receiving an inheritance or draining your retirement savings to buy a house. Whether or not you employ a professional financial advisor or take on the investments yourself, you get to adapt your portfolio as your life evolves.

  1. Risk May Not Match You Perfectly

Your risk tolerance is also unique to you.  Two people aiming to retire at the same time can have widely different journeys getting there. Target-date funds have to be generalized, which could affect your retirement planning or fail to protect your assets appropriately.

A financial advisor may recognize that you are behind on your retirement and know that if you stay in a target-date fund, you won’t reach your goals, so they may need to take a different approach with a different risk level.

  1. Lack of Diversification

While built-in diversification is a benefit of target date funds, they also lack diversification. Target date funds will be made up of other funds. A Vanguard target-date fund would be composed of Vanguard index funds. A Fidelity target-date fund would then be composed entirely of Fidelity index funds.

Do you see the problem here?

The analogy related to sports would be if you were putting together an all-star group of sports teams, but you only used Colorado teams, the Avalanche, Broncos, Rockies, Nuggets, and Rapids. You don’t have to be a sports geek to know that the probability that all Colorado teams would be the best in their leagues year after year is not likely. This is how a target-date fund works: it only uses one companies teams.

For many people, without a firm knowledge of the industry or investments, they end up here, whether it makes sense or not.

 

Related: Embracing Seasonal Retirement: A Lifestyle of Flexibility and Renewal

 

Are Target Date Funds Good for Beginners?

For most people in Generation XY, the short answer is that it may not be the worst choice.

If you:

  • Don’t want to manage investments
  • Aren’t working with a financial planner
  • Prefer a simple, basic, and automatic approach
  • Are just getting started and are okay with an out-of-the-box solution.

Then, a target date fund is a solid option.

It may not be perfect, but it’s often “good enough” to build long-term wealth.

When You Might Want Something Else

A target date fund might not be ideal if you:

  • Want full control over your investments
  • Want more diversification
  • Looking for something that better aligns with your risk and goals
  • Are more hands-on with investing

 

Final Thoughts

Target date funds are popular for a reason. They simplify one of the hardest parts of investing.

For many people, especially busy professionals, that simplicity can make the difference between investing consistently and not investing at all. Keep in mind you are sacrificing some diversification and customization.

 

Common Questions About Are Target Date Funds Good For Beginners

 

  1. Should you have more than one target date fund?

In most cases, no.

It’s usually best to have one target date fund per account. These funds are already diversified, so owning multiple ones can:

  • Overlap investments
  • Make your allocation confusing
  • Defeat the purpose of simplicity

 

  1. How do you choose the right target date fund?

Start with your expected retirement year.

Then adjust if needed:

  • Choose a later date if you want more growth (more stocks)
  • Choose an earlier date if you want less risk (more bonds)

It doesn’t have to be the exact year to plan on retiring. Close is good enough.

 

  1. Can you use a target date fund outside of a retirement account?

Yes, you can.

Target date funds can be held in:

  • Brokerage accounts
  • IRAs
  • 401(k)s

Just keep in mind that they may be less tax-efficient in taxable accounts due to portfolio turnover.

 

  1. My employer picked a target date fund for me. Is it the right one?

It’s a good starting point, but don’t assume it’s perfect.

Check:

  • Does the retirement year match your plans?
  • Are you comfortable with the risk level?

If not, you can usually switch to another target-date fund. Or use the other funds offered to you to build a custom portfolio.

 

  1. Schwab vs Vanguard target date funds: which is better?

Both are solid options. (information based on writing of this article 4/24/26)

  • Vanguard: Known for low costs, less portfolio turnover, high credit quality and moderate interest rate sensitivity
  • Schwab: Also low-cost, more portfolio turnover, medium credit quality and moderate interest rate sensitivity

The differences are small for most investors. The better choice is often:

  • The one available in your employer-sponsored retirement plan

Sources:

Investment Company Institute — Defined Contribution Plan Participant Activity Reports

Plan Sponsor Council of America — Annual Survey of 401(k) and Profit Sharing Plans

Vanguard — How America Saves Report and Target Retirement Fund Glide Path Data

https://www.morningstar.com/personal-finance/is-my-target-date-fund-layering-extra-fees , https://www.morningstar.com/funds/xnas/swyjx/quote , https://www.morningstar.com/funds/xnas/vffvx/quote#notes-item-2 ,

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