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Not investment advice. Educational reading. See Disclaimer.
L.4 · BEGINNER · 2 MIN

Target-Date Funds and Glide Paths

If even three funds feels like too much to manage, there is a one-fund answer: a target-date fund. You pick the fund whose year is closest to when you will need the money (for example, 'Target Retirement 2065'), and it holds a diversified stock and bond mix that automatically grows more conservative as that date approaches. That automatic shift from mostly-stocks to more-bonds over time is called the glide path. For most people, in most situations, this is a genuinely excellent default -- it is what most workplace retirement plans now use automatically.

Quiz · 5 questions ↓
§ 01
FundTypeExpense ratio
Vanguard Target RetirementIndex-based, automaticAbout 0.08%
Fidelity Freedom IndexIndex-based, automaticAbout 0.12%
Fidelity Freedom (active)Actively managed -- avoidAbout 0.75%
§ 02

Two target-date funds for the same year can charge wildly different fees -- and 0.75% versus 0.08% is roughly $670 more per year on a $100,000 balance, every year, forever. Always check the expense ratio and pick the low-cost INDEX version, not the actively managed fund with a nearly identical name.

§ 03
Look up your workplace retirement plan's default fund -- odds are it is a target-date fund. Check its expense ratio: under ~0.15% is great; over ~0.5% means you are overpaying for the same basic mix.
§ 04

A target-date fund is the 'set it and forget it' option, and that is a feature, not a weakness. The biggest real-world risk to a portfolio is not picking the slightly-wrong fund -- it is fiddling, panic-selling, and forgetting to rebalance. A target-date fund removes all three.

§ 05
Two target-date funds both say '2060.' One charges 0.08%, the other 0.75%. What should you do?
Five questions · AI feedback

Sit with the ideas.

What does the 'glide path' in a target-date fund do?

Why:

Other lessons in this course.

  1. 01Asset Allocation by Time Horizon
  2. 02Stocks vs Bonds vs Cash: The Numbers
  3. 03The Three-Fund Portfolio
  4. 04Target-Date Funds and Glide Paths— reading now
  5. 05Opening a Brokerage Account
  6. 06Funding Your Account and Your First Buy
  7. 07Dollar-Cost Averaging vs Lump-Sum
  8. 08Rebalancing Rules: Calendar vs Threshold
  9. 09Asset Location: Which Account Holds What
  10. 10Tax-Loss Harvesting -- The Mechanics
  11. 11I-Bonds and TreasuryDirect
  12. 12Sequence-of-Returns Risk
  13. 13Equity Compensation as Concentrated Risk
  14. 14The 5 / 10 / 30-Year Checkup
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