A tipping point for target-date funds

December 14, 2017

Jean Young

Jean Young

Note: This article is reprinted from the Vanguard Blog for Institutional Investors.

As of October 2017, Vanguard plan participants reached a critical (and encouraging!) tipping point. Half of all Vanguard participants were invested in a single target-date fund (TDF). And 57% of all participants were solely invested in a professionally managed allocation: 4% were using managed account options, 3% held a single-risk-based balanced fund, and 50% held one TDF.

Critics of 401(k) plans typically point out two issues. First, not enough people participate, and, second, many individuals don’t have the time, ability, or inclination to construct well-diversified investment portfolios.

TDFs are helping with portfolio construction—and participants are increasingly relying on them. In 2016, 8 in 10 new plan entrants held one TDF. In fact, we predict that in just five years, 75% of plan participants will be invested solely in a TDF. TDFs are dramatically reshaping investment allocations for these participants—and silencing the critics.

Nearly all plan participants (97%) have access to TDFs, and 72% hold a TDF—and it's not just automatic enrollment driving this phenomenon. Our research shows that more participants voluntarily choose TDFs than are defaulted into them.

TDFs are helping participants construct well-diversified investment portfolios.
Source: Vanguard, How America Saves 2017.

The numbers tell the story: TDFs are helping participants construct well-diversified investment portfolios. The increasing presence of TDFs in 401(k) plans are helping sponsors shift their focus to the next key issue on the road to retirement readiness: achieving stronger participant saving rates.


  • All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.
  • Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date.


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