Are Target-Date Funds Good?

You're 22, you just started your first real job, and you clicked through the 401(k) enrollment. Your money landed in the Vanguard Target Retirement 2065 Fund. Good. That's a better default than most people get.

But open it up and you'll find something a little odd for someone who just graduated. About 8% of the Vanguard 2065 fund is sitting in bonds. You won't touch this money for roughly 40 years. So why is any of it playing defense?

Are target-date funds good? For most people, yes. They're low-cost, broadly diversified, and rebalance automatically, which makes them a strong default in a 401(k). The one thing I'd change for a 22-year-old with stable income and an emergency fund is the bond slice. I'll walk through what these funds do well and where they fall short, then make the case that the bonds aren't necessary for most young professionals in their first job. I also ran the numbers on the Vanguard 2065 fund against a 100% stock portfolio, and the gap was smaller than I expected in one way and bigger in another.

What a target-date fund actually is

A target-date fund is an all-in-one fund built around the year you expect to retire. I'll use one example for the rest of this post: a 22-year-old who just set up their 401(k) in the Vanguard 2065 fund. It holds a mix of stock and bond index funds, and that mix slowly gets more conservative as 2065 gets closer.

That slow shift is called the glide path. When retirement is decades away you can ride out a crash, and when it's a few years away a crash can wreck your plans.

As of its most recent prospectus, the Vanguard 2065 fund held:

About 54.5% in U.S. stocks through Vanguard's Total Stock Market Index Fund.
About 37.1% in international stocks.
About 5.5% in U.S. bonds.
About 2.4% in international bonds.

So the Vanguard 2065 fund is roughly 92% stocks and 8% bonds, for an expense ratio of 0.08% a year. Vanguard holds that mix until about 25 years before the target date, which for this fund is around 2040. Then it starts sliding toward roughly 50% stocks by 2065 and keeps getting more conservative for about seven years after that.

How target-date funds shift from stocks to bonds, year by year

This is every Vanguard Target Retirement fund in five-year steps, using the allocations from Vanguard's January 2026 prospectuses (as of September 30, 2025). Bonds include inflation-protected Treasuries (TIPS) in the funds that hold them.

Fund	Years until target date	Stocks	Bonds
Target Retirement 2070	44	91.5%	7.9%
Target Retirement 2065	39	91.6%	7.9%
Target Retirement 2060	34	91.5%	7.9%
Target Retirement 2055	29	91.5%	7.9%
Target Retirement 2050	24	91.2%	8.2%
Target Retirement 2045	19	83.5%	15.9%
Target Retirement 2040	14	76.2%	23.2%
Target Retirement 2035	9	68.6%	30.8%
Target Retirement 2030	4	60.8%	38.5%

Totals may not add to exactly 100% because of small cash holdings and rounding. Every fund in the lineup charges 0.08% a year.

Look at the top five rows. The 2050, 2055, 2060, 2065, and 2070 funds are all basically the same fund right now. Each holds about 92% stocks and 8% bonds, whether you're 22 or 41.

The shift doesn't really start until a fund is about 25 years from its target date. From there, each five-year step moves roughly 7 to 8 points out of stocks and into bonds. By the target year the fund sits near 50/50, and a few years into retirement it lands at the Income fund's mix of about 30% stocks.

Other fund families follow the same general shape, but their exact numbers differ. Fidelity, Schwab, and T. Rowe Price each set their own glide paths, so a 2065 fund from another company won't necessarily match Vanguard's 92/8.

What target-date funds do well

The biggest thing they do is remove decisions. You pick one fund and you're diversified across thousands of companies in dozens of countries. There's no rebalancing to remember and no allocation to second-guess after a bad quarter.

They also rebalance for you. When stocks drop 25%, the fund quietly buys more stock to get back to its target. Most people can't make themselves do that on their own, because it means buying the thing that just lost money.

And the good ones are cheap. Vanguard, Fidelity, and Schwab all offer index-based target-date funds under 0.15% a year. If you want the longer version of why low costs matter so much, I wrote about it in how index funds work and why they're so hard to beat.

Where target-date funds fall short

You can't customize anything. It's a package deal. If you want more small-company stocks, less international, or zero bonds, you're out of luck inside the fund itself.

Funds with the same year aren't the same product either. A 2065 fund from one company might hold 92% stocks while another holds 85% or 97%. The label tells you the retirement year. It doesn't tell you how aggressive the fund is.

Costs vary a lot. Some 401(k) plans use proprietary target-date funds that charge 0.50% to 1.00% a year. On a $200,000 balance, the gap between 0.10% and 0.75% is $1,300 a year, and that gap compounds for decades. So check what you're paying before you assume the default is a good deal. My guide on how to read your 401(k) statement shows where to find it.

Last, a target-date fund only sees one account. It has no idea you also have a Roth IRA, a brokerage account, or a spouse with their own 401(k). Once you have money in a few places, the fund's "complete portfolio" covers only part of what you own.

Why the bonds in your first target-date fund aren't doing much

For a young professional in their first job out of college, I don't think the roughly 8% bond slice in a target-date fund is necessary. I'd rather that money be in stocks, for two reasons.

Your paycheck is already your bond

Bonds are in a portfolio to provide stability. But at 22, the most stable financial asset you own isn't in your 401(k) at all. It's your future income.

Say you start at 22 earning $65,000 and get 3% raises. Over the next 39 years that's around $4.7 million in paychecks. Your 401(k) will hold about $7,000 at the end of year one. Compared to that stream of income, which doesn't rise and fall with the stock market day to day (though a job loss can still interrupt it), your investment account is tiny. Planners call this human capital, and for someone just starting out, it acts a lot like a giant bond.

So your overall financial picture is already extremely conservative. Adding bonds to the small investment piece doesn't change that much. It just slows the growth of the one part that's supposed to be growing.

The bonds protect a balance that barely exists yet

Picture a brutal crash where stocks fall 40%. If you have $20,000 in a 92/8 target-date fund, you'd lose about $7,360. In a 100% stock portfolio you'd lose $8,000.

That's a $640 difference. Your next few 401(k) contributions will cover it. And because you're still buying every paycheck, a crash in your 20s can work in your favor, since you keep buying shares at lower prices for years, assuming prices eventually recover. What happens to you in a downturn is covered in more detail in what really happens to your investments when the market drops.

The bonds are insuring something that doesn't need much insurance yet.

What skipping the bonds is worth in dollars

I wanted to see what this looks like in dollars, so I built a simple model. Here are the assumptions:

You're 22 in 2026 and just set up your 401(k) in the Vanguard 2065 fund. You invest until 2065, when you're 61, which is 39 years of saving.
You earn $65,000 and put 10% into your 401(k), including any employer match. That's $6,500 in year one.
Your contribution grows 3% a year with raises, for about $470,000 contributed in total.
Stocks return 8% a year and bonds return 4.5% a year, rebalanced annually. These are hypothetical long-run averages, not predictions.
The target-date version follows Vanguard's glide path, holding 92% stocks until 2040 and then sliding to 50% stocks by 2065.

I compared three portfolios. The first is the Vanguard 2065 fund exactly as designed. The second is 100% stocks for all 39 years. The third is the approach I'd actually suggest, which is 100% stocks until age 40 and then matching the Vanguard 2065 fund's allocation from there.

Portfolio	Balance at age 40	Balance in 2065	Difference vs. target-date fund
Vanguard 2065 glide path	$312,177	$1,920,531	None
100% stocks until 40, then same glide path	$322,020	$1,960,462	+$39,932 (2.1%)
100% stocks the entire time	$322,020	$2,379,537	+$459,007 (23.9%)

Hypothetical illustration: The figures above come from a hypothetical model, not the actual performance of any fund, account, or Villaire Financial client. The model assumes constant annual returns of 8% for stocks and 4.5% for bonds, annual rebalancing, contributions made at the start of each year, and a simplified version of the Vanguard Target Retirement 2065 Fund's glide path. It does not reflect fund expenses, advisory fees, taxes, or inflation, and balances are shown in future (nominal) dollars. Actual returns vary from year to year, can be negative, and will differ from these assumptions. Hypothetical results have inherent limitations and do not guarantee future results. A 100% stock portfolio carries a greater risk of loss and larger short-term declines than a portfolio that includes bonds.

That last row is the headline number. Being 100% in stocks for your whole career ends with about $459,000 more in this model. But I don't think that's a fair comparison.

Almost all of that $459,000 comes from the last 25 years, when the target-date fund is deliberately moving toward bonds to protect a large balance right before you need it. Taking a 40% hit at 60 on $1.5 million is a very different problem than taking it at 23 on $7,000.

The honest comparison is the middle row. Skipping the bonds only from 22 to 40 adds about $40,000 by 2065. I also tested it with lower returns (7% stocks, 4% bonds) and higher ones (9% stocks, 4.5% bonds). The early-bond cost came out between roughly $26,000 and $65,000.

So is that a lot? It's not life-changing. But in this model you give up relatively little protection to get it, because the balance you're protecting is still small, and it comes down to one allocation choice. To me that trade is worth considering, as long as you're comfortable with the bigger swings of an all-stock portfolio.

And notice what the model doesn't capture. If you're the kind of investor who'd sell in a panic, a small bond cushion won't save you, because a 92/8 portfolio still drops about 37% in a 40% crash. What keeps most people invested through a crash is having a plan and an emergency fund.

Who should keep the bonds anyway

This isn't one-size-fits-all advice, and 100% stocks isn't the right answer for everyone, even at 22. Your own risk tolerance matters as much as the math, because the math only works if you stick with it.

If watching your balance drop 40% would keep you up at night, a portfolio with some bonds that you'll actually hold beats an all-stock one you abandon in the first bad year. Your allocation should fit your situation and the level of risk you're comfortable living with.

Keep the target-date fund as is, bonds included, if any of these describe you:

You don't have an emergency fund yet. If a job loss would force you to pull from your 401(k), stability matters more than the extra return. Build the cushion first with my guide to building an emergency fund that actually covers you.
Your income is unstable. A commission-heavy sales role or a startup job with a real chance of layoffs looks less like a bond and more like a stock, so your portfolio should carry a little more ballast.
You know you'd touch it. If watching your balance fall 40% would make you stop contributing or sell, the simplest fund you'll leave alone beats the optimal one you'll abandon.
You're in your mid-30s or older. That's when the glide path starts moving on its own, and my argument gets weaker every year your balance grows.

Also keep in mind that this is about retirement money. Money you'll need in the next few years for a house or a wedding shouldn't be 100% stocks, and honestly shouldn't be in your 401(k) at all.

How to go 100% stocks inside your 401(k)

You might think the fix is to pick a later-dated fund, like 2070. At Vanguard, that won't help. As the table above shows, the 2070 fund holds the same 92/8 mix as the 2065 fund, since both are still on the flat part of the glide path.

The simpler fix is to build it yourself from a few low-cost index funds your plan almost certainly offers. Stick with passive funds, meaning funds that simply mirror an index instead of paying a manager to pick stocks. The steps:

Start with a U.S. stock index fund. A total market index fund is the easiest choice because it already holds large, mid-size, and small companies in one fund. Check that its expense ratio is under 0.10%.
If your plan only offers an S&P 500 fund, fill in the gaps with a mid-cap and a small-cap index fund. The S&P 500 only holds large companies, which make up roughly 80% of the U.S. market's value, according to S&P Dow Jones Indices. Look for passive funds that track a mid-cap index (like the S&P MidCap 400) and a small-cap index (like the S&P SmallCap 600 or Russell 2000), with expense ratios as close to the S&P 500 fund's as you can find. Putting roughly 80% of your U.S. money in the S&P 500 fund and splitting the other 20% between mid-cap and small-cap gets you close to the whole market.
Add an international stock index fund, ideally one covering both developed and emerging markets.
Split your contributions about 70-80% U.S. and 20-30% international. That leans a bit more toward U.S. stocks than the target-date fund's roughly 60/40 split, and it drops the bonds.
Rebalance once a year, or set up automatic rebalancing if your plan offers it.
Put a reminder on your calendar for your 40th birthday to start adding bonds, or simply move back into a target-date fund at that point and let it take over the glide path.

To be clear, this is a sample allocation for educational purposes. It isn't a specific portfolio recommendation for you. The right mix depends on your plan's fund lineup, your other accounts, your income stability, and how you'd actually react in a downturn.

That reminder at 40 matters. The reason target-date funds work is that nobody has to remember anything. Once you go the do-it-yourself route, shifting into bonds later is your job. If you don't trust yourself to make the shift later, the default fund is still a perfectly good choice.

Contribution limits don't change with any of this. For 2026 you can defer up to $24,500 into a 401(k), and a first-job salary rarely comes close. Early on, how much you save will move your balance more than how you invest it. If you're not sure what order to fill accounts in, my investing order of operations walks through it.

Who target-date funds are right for

After all that, I still like target-date funds. They're a strong choice if:

You want one decision and never want to think about your allocation again.
Your plan's target-date fund costs under 0.20% a year.
Your 401(k) is your only investment account, so there's nothing else to coordinate.
You're closer to retirement and want the de-risking handled for you.

They make less sense if:

You're early in your career, have a solid emergency fund, and are comfortable owning 100% stocks.
Your plan only offers high-cost target-date funds above 0.50%.
You have money in several account types, where placing bonds and stocks in the right accounts can save real taxes.
You work with an advisor who manages your full allocation across every account.

A target-date fund is a good default, and 8% in bonds at 22 is unlikely to make or break your retirement. But if you've got stable income and an emergency fund, you probably don't need the training wheels from 22 to 40. In my hypothetical model, that one change added about $40,000 by 2065. After 40, let the glide path do its thing.

Every situation is a little different, and this is exactly the kind of decision I walk through with clients in their first few years of working. If you want a second set of eyes on your 401(k) setup, I'm happy to take a look.

Frequently Asked Questions

Are target-date funds good for young investors?

Target-date funds are a solid, low-cost default for young investors because they offer instant diversification and automatic rebalancing. The main drawback for someone in their 20s is that many hold a slice of bonds even decades from retirement. The Vanguard 2065 fund holds about 8%. A 22-year-old in the Vanguard 2065 fund with stable income and an emergency fund can reasonably hold 100% stocks until age 40 instead.

How much does the Vanguard Target Retirement 2065 Fund hold in bonds?

The Vanguard Target Retirement 2065 Fund recently held about 92% stocks and 8% bonds, split between U.S. and international bond index funds. It keeps roughly that mix until about 2040, then gradually shifts toward about 50% stocks by 2065. Its expense ratio is 0.08% a year.

How much more would a 100% stock portfolio have than a target-date fund?

In a hypothetical model of a 22-year-old contributing $6,500 a year, growing 3% annually for 39 years, with 8% stock returns and 4.5% bond returns, holding 100% stocks until age 40 and then following the glide path ended with about $40,000 more than the Vanguard 2065 fund. Staying 100% in stocks the entire time ended with about $459,000 more, but that comes with much greater risk right before retirement. These are hypothetical figures that ignore fees, taxes, and inflation, and actual results will differ.

Should I pick a later target-date fund to get more stocks?

Picking a later target date usually doesn't help young investors, because funds 25 or more years from their target year typically hold the same stock-to-bond mix. At Vanguard, every fund from 2050 through 2070 holds about 92% stocks and 8% bonds. To get to 100% stocks, you'd use a U.S. stock index fund and an international stock index fund instead.

When should I not use a target-date fund?

A target-date fund makes less sense if your plan's version charges more than 0.50% a year, if you have assets in several account types that need to be coordinated, or if an advisor is already managing your full allocation. In those cases, building your own mix from low-cost index funds usually works better.

Disclosure: This article is for educational purposes only and does not constitute personalized investment, tax, or legal advice. Individual situations vary. Please consult a qualified financial professional before making financial decisions. Villaire Financial, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. References to specific funds and indexes are for illustration only and are not recommendations to buy or sell any security. Schedule a free intro call if you'd like to talk through your specific situation.