Should You Keep Your 401(k) Target-Date Fund or Build Your Own Mix?

A common 401(k) question goes like this. You are in your early 30s and everything sits in a target-date index fund for the year you expect to retire. The plan menu also lists an S&P 500 index fund that costs less, plus total international and total bond index funds. Should you build your own mix from those pieces, or leave the money where it is?

For most savers, leave it. If the target-date fund is an index fund from a low-cost provider, rebuilding it from the same ingredients saves about two hundredths of a percentage point a year. Swapping it for the S&P 500 fund saves a little more on fees and changes the portfolio far more. The evidence on what 401(k) investors do when they build their own portfolios is the strongest argument for the one-fund default.

What a target-date index fund holds

A target-date fund is a fund of funds. Vanguard’s Target Retirement 2060 Fund held five index funds on September 30, 2026: U.S. stocks 54.9%, international stocks 36.6%, U.S. bonds 5.9% and international bonds 2.6%.² Inside a 401(k) the same strategy is usually offered as a collective investment trust, a bank-maintained pool that plans can buy at lower prices than the retail mutual fund.

The fund changes that mix on a schedule called the glide path. Vanguard holds about 90% stocks until roughly age 40, cuts the stock share to about 50% by age 65, and reaches its most conservative mix, 30% stocks, about seven years after the target date.³ It rebalances back to those targets as markets move, so a crash or a boom does not leave the portfolio stuck at a mix nobody chose.

Some readers hear that target-date funds are actively managed and expensive. Part of that is true: every target-date fund makes active decisions about the glide path and the stock-bond split, and some series fill those slots with active funds. Index-based series held 55% of target-date mutual fund assets at the end of 2025, and the asset-weighted fee across all target-date mutual funds was 0.27%.⁴ That average excludes the collective trusts, which held 54% of all target-date money. The question to ask is what your plan’s fund holds and charges, which the plan’s annual fee disclosure (the 404a-5 notice) and the fund fact sheet answer.

The fee gap between the fund and its own ingredients

To price the do-it-yourself version, weight each building block’s expense ratio by its share of the portfolio. Using Vanguard’s public funds and the 2060 fund’s September 2026 weights:

Summitward calculation. Weights 54.9% U.S. stock, 36.6% international stock, 8.5% bonds (the Admiral version prices both bond sleeves at VBTLX’s fee). Expense ratios from Vanguard fact sheets and prospectuses as of 2026.⁵⁶⁷⁸ The 30-year column assumes the same 7% return before fees for both, a single $100,000 deposit, and fees subtracted from the return each year. The ETF version needs a brokerage window or an IRA; most 401(k) menus do not offer ETFs.

Those numbers are the upper end for most 401(k)s. Plan versions of a target-date fund are often cheaper than the retail fund: Vanguard lists its 2060 trust classes at 0.045% to 0.075%, and large employers negotiate lower prices on both the trust and the index funds beside it. The gap shrinks along with the fees, because a target-date index fund charges roughly what its ingredients cost plus a small margin for the allocation work.

Fees compound, and $4,500 is real money. On the same assumptions it is about 0.6% of the ending balance after 30 years. A single mistake costing 1% of today’s balance would take about 50 years of that fee saving to earn back. That is arithmetic on a hypothetical, and the next sections look at whether such mistakes happen.

Swapping in the S&P 500 fund changes the portfolio

Many plan menus list an S&P 500 index fund as the cheapest U.S. stock option. Moving the whole balance into it is a different portfolio. The S&P 500 covers about 80% of the U.S. market by value and leaves out mid-size and small companies.⁹ It has no international stocks, which were 37% of the 2060 fund, and no bonds.

Each of those is a defensible choice, but none is a fee decision. A rough sense of scale: if stocks earn three percentage points a year more than bonds over a career (an assumption, not a forecast), moving from 90% to 100% stocks adds about 0.3 points a year of expected return, more than ten times the 0.022-point fee gap, along with more risk. Dropping international stocks is a bet on one country; our global diversification guide covers the evidence for owning both. If you want one of these changes, make it on purpose and keep the rest of the portfolio diversified.

What 401(k) savers do when they build their own

No study compares a low-cost target-date fund with a disciplined investor who builds and maintains the same mix. The research compares target-date funds with what participants did instead, which is the comparison that matters for most people.

Plan records. Vanguard’s How America Saves 2026 covers participants in plans it administers. At the end of 2025, 61% of them held a single target-date fund.¹ Among participants who constructed their own portfolios, 24% held extreme allocations: 7% owned no stocks and 17% owned only stocks. Among those holding a single target-date fund, virtually all were between 51% and 90% stocks. Some of the all-stock DIY portfolios are deliberate and reasonable for a young saver. A 30-year-old with no stock exposure at all is harder to defend. During 2025, 1% of single-target-date investors made an exchange, compared with 5% of all participants without advice.

Default studies. Defaults stick. At one large employer that began automatic enrollment into a money market fund in 1998, 80% of new hires’ contributions went to money market, against under 10% for earlier hires who had chosen for themselves.¹⁰ Later work across three firms found that the same inertia left about half of new employees at a low default contribution rate and a conservative default fund three years on.¹¹ The University of Iowa ran the comparison with two defaults: under a money market default, 61.4% of new participants accepted it and more than 95% of those left within three months. Under a target-date default, 90.7% accepted it, nearly two-thirds were still fully invested three years later, and equity allocations ran 53 percentage points higher.¹²

Plans that added target-date funds. In 880 Vanguard plans that added target-date funds between 2003 and 2015, participants who moved everything into one of them raised their stock share by 24 percentage points, and those who mixed it with other funds by 13 points. Both groups held less cash and less employer stock.¹³ The authors estimate that a low-cost single-fund holder could end up with as much as 50% more wealth over 30 years, but that figure is a modeled upper bound, and it comes from taking more stock risk. The target-date holders’ expected return per unit of risk was slightly lower than other participants’, and the authors caution that self-selection limits how much of the change can be credited to the funds.

Mixing a target-date fund with other funds. An earlier Vanguard study found that 56% of participants who chose a target-date fund on their own also held other funds, an average of 4.5 in total, with the target-date fund getting only 35% of their contributions.¹⁴ That defeats the purpose: the fund manages its own slice and cannot see the rest. By 2025, 73% of target-date users in Vanguard plans held only one.¹

Persistence. In the EBRI/ICI database, 85% of participants who were fully in target-date funds at the end of 2016 were still fully in them at the end of 2022.¹⁵

Compared with paid advice. When an Oregon university retirement plan removed brokers and added target-date funds in 2007, the target-date portfolios carried similar market risk to the broker-advised ones and earned higher returns per unit of risk.¹⁶

Fees decide which target-date funds work. From 2010 to 2020, target-date funds charging under 0.30% tracked passive benchmarks with the same allocation, with alphas near zero; the 35 funds with the worst alphas were all higher-cost funds.¹⁷ Because target-date funds rebalance, they buy stocks after stocks fall. One study estimates that this offsets about a fifth of the trend-chasing flows in other mutual funds.¹⁸

What the evidence does not show

The research above establishes that defaults change behavior, that many self-directed portfolios drift to extremes, and that cheap target-date funds deliver their allocation’s return. It does not establish that a target-date investor earns more than a disciplined DIY investor who holds the same allocation. The investor-return data fit that picture without proving it: in Morningstar’s 2026 study, investors in allocation funds, the category that includes target-date funds, captured about 92% of the funds’ ten-year return, against about 88% across all funds.¹⁹ Morningstar notes that the gap also reflects the timing of regular contributions, so it measures more than bad decisions.

Target-date investors also differ from DIY investors in age, income, tenure and whether they were enrolled automatically. A raw comparison of the two groups’ returns would confuse the fund with the people who hold it.

Same year in the name, different amounts of risk

A target year is not a standard. Providers’ index series for their youngest savers start at different stock shares and land at different ones:

Sources: Vanguard glide-path page and 2060 fund fact sheet; BlackRock LifePath Index 2070 summary prospectus (May 2026); Schwab Target Index Funds prospectus (allocation as of February 1, 2026); Nuveen Lifecycle Index 2070 summary prospectus (October 1, 2026).²⁰²¹²² BlackRock counts REITs as equity. Fund allocations drift around these targets.

The differences grow near retirement. A GAO review found that allocations varied more among funds within 10 years of their target date, and that in the February-March 2020 decline the average 2060 fund lost 14% while the average 2020 fund lost 8%, with wider spreads among the near-dated funds.²³ An earlier study of 67 funds with 2015 or 2020 targets found their 2009 returns spread over 23.5 percentage points.²⁴ Long-dated funds are not safe either: funds dated 2045 and later fell 30% to 35% from February 19 to March 23, 2020.¹⁷

The year on the label is a setting you can change. Someone who wants more stock can pick a later-dated fund; someone retiring at 55, or relying heavily on this account for early spending, may want an earlier one. Check the fund’s current mix and its mix at the target date before choosing.

Where the one-size glide path falls short

A plan default has to work for everyone born in the same five-year window. The Labor Department’s default-investment rule lets a lifecycle default ignore everything else about you: its allocation decisions “are not required to take into account risk tolerances, investments or other preferences of an individual participant.”²⁵ That is what lets a plan offer one to everyone, and it is why one fund cannot be the best portfolio for everyone.

Two research programs question the glide path itself. A lifecycle model with labor income and many other household features estimates that following a Vanguard-style glide path instead of the model’s best rule costs roughly 1% of lifetime consumption, measured from age 25; the model’s best stock share falls more slowly, and by less, than target-date funds’.²⁶ A bootstrap study of returns from 39 developed countries goes further and favors all stocks for life, about one-third U.S. and two-thirds international. In its March 2025 version, a target-date saver would need to save 16.1% of pay instead of 10% to match the all-equity investor’s expected well-being.²⁷ That paper is still a working paper. In 2024, Cliff Asness of AQR argued that its historical sample overstates future stock returns because valuations rose over it, and that investors can take more risk in other ways.²⁸ Our asset allocation debate and 90/10 vs. 60/40 guides go through that evidence in detail.

Both critiques say a young saver could reasonably hold more stock than a 90/10 fund, which you can get by choosing a later-dated fund or building your own mix. Neither shows that DIY investors in practice get closer to the optimum, and an all-stock plan only works if you keep it through a crash like 2008’s.

When building your own mix is the better choice

If you build your own, write the plan down: the stock-bond split, the U.S.-international split, how the stock share will fall as you age, and a rebalancing rule. Trades inside a 401(k) are not taxed, so rebalancing costs nothing there.²⁹ The work is remembering to do it during a crash. Our guide to how often to rebalance has the evidence on calendar and threshold rules.

Brokerage windows and employer stock

Some plans offer a self-directed brokerage window that opens the account to individual stocks and ETFs. In Vanguard’s 2025 data, 23% of plans offered one and about 1% of participants who had access used it.¹ Whether your plan has a window, what it costs and what it can hold is set by the plan document, so check your plan’s materials rather than general descriptions. A window widens the menu; it does not change the case for keeping the core of the account diversified.

An employer stock fund in the plan raises a separate question. If you already hold your employer’s shares through equity compensation, your salary, bonus and stock all depend on the same company. Adding more in your retirement account concentrates that further. In Vanguard’s plans, 7% of participants held employer stock and 2% had more than 20% of their account in it.¹ Our guides to the four exposures to one employer and concentration risk cover how to size and reduce it.

Run your own numbers

The calculator compares the target-date fund with the same allocation built from separate index funds. Enter the fees from your plan’s disclosure. It holds the allocation fixed, so any difference it shows is cost alone.

Frequently asked questions

Is 10% in bonds too much for someone in their 30s?

It is a cautious choice, and the lifecycle research above suggests a young saver who will not sell in a crash could hold more stock. If you want that, pick a later-dated fund or a series with a higher starting stock share; BlackRock’s and Schwab’s index series start at 97% to 99% stocks. The 10% bond sleeve costs some expected return and cushions the fund in a stock decline.

Can I hold a target-date fund and other funds together?

You can, but the fund only manages its own share. If you add an S&P 500 fund next to it, your total stock share and your U.S. tilt both rise, and the fund will not offset them. Either hold the target-date fund alone or treat it as one component of a portfolio you manage as a whole.

Does switching funds inside a 401(k) trigger taxes?

No. Gains inside a traditional 401(k) are not taxed until you take distributions, and qualified Roth 401(k) distributions are tax-free, so moving between funds in the plan is not a taxable sale.²⁹ Some plans limit how often you can trade or charge short-term trading fees on particular funds.

Is a collective trust riskier than a mutual fund?

A collective investment trust holds the same kind of assets and is overseen by bank regulators and the plan’s fiduciaries rather than registered with the SEC. It does not publish a prospectus, so information comes from the trust’s fact sheet and your plan’s fee disclosure. The SEC’s investor bulletin on target-date funds covers mutual funds and points to bank regulators for trusts.³⁰

Should I pick the target year closest to when I will retire?

That is the default, and nothing requires it. The year selects a glide path. Choose the one whose current and future stock share you are comfortable holding, taking your other accounts and income into account.

Does a target-date fund make sense in a taxable brokerage account?

Usually not. Its bond income is taxed each year, you cannot harvest losses on its pieces separately, and fund-level capital-gain distributions are possible. In tax-advantaged accounts none of that applies. Our guide to how many funds you need covers when separate funds earn their keep in taxable accounts.

Key takeaways

• The fee case for DIY is small. Using Vanguard’s public funds, rebuilding the 2060 fund from its Admiral-share ingredients saves about 0.022 points a year, $22 per $100,000.
• Replacing it with an S&P 500 fund is an allocation change. It drops international stocks, bonds and smaller U.S. companies.
• Behavior is where the default earns its place. In Vanguard’s plans, 24% of DIY portfolios held no stocks or only stocks; single target-date holders almost never did.
• Target years differ by provider. Index series for the same generation start between about 90% and 99% stocks.
• DIY wins with a reason. A different allocation, a household plan across accounts, or an expensive target-date fund justifies building your own, if you will maintain it.

Related guides

• Is a High-Fee 401(k) Still Worth Using Beyond the Match? covers what to do when every fund on the menu is expensive.
• 60/40, Target-Date Funds, or 100% Stocks Forever? compares the three approaches and who each one suits.
• If Ben Felix Uses One Fund, Do You Need Ten? covers when extra funds add diversification and when they add clutter.
• Lifecycle Asset Allocation explains why future earnings let young investors hold more stock.
• VTSAX vs FSKAX: Should You Switch to the Cheaper Index Fund? runs the same fee arithmetic for two nearly identical funds.
• Old 401(k): Roll It Over or Leave It? compares plan fees with an IRA when you change jobs.

Sources and method

1. Vanguard, How America Saves 2026. Single target-date use, extreme allocations (Figure 83), trading, brokerage windows and company stock, year-end 2025.
2. Vanguard, Target Retirement 2060 Fund fact sheet, September 30, 2026. Expense ratio 0.08% as of January 28, 2026.
3. Vanguard, Target-date fund glide path.
4. Morningstar, 2026 Target-Date Landscape. Fee and active/passive figures cover mutual funds and exclude collective trusts.
5. Vanguard, Morningstar Total Stock Market Index Fund Admiral Shares fact sheet. Expense ratio 0.04%.
6. Vanguard, Total International Stock Index Fund Admiral Shares fact sheet. Expense ratio 0.09%.
7. Vanguard, Total Bond Market Index Fund Admiral Shares fact sheet. Expense ratio 0.04%.
8. Vanguard, Total International Bond ETF fact sheet. Expense ratio 0.07%. VTI 0.03%, VXUS 0.05% and BND 0.03% from Vanguard’s current prospectuses.
9. S&P Dow Jones Indices, S&P 500 overview.
10. Brigitte Madrian and Dennis Shea, “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior”, Quarterly Journal of Economics 116(4), 2001.
11. James Choi, David Laibson, Brigitte Madrian and Andrew Metrick, “For Better or For Worse: Default Effects and 401(k) Savings Behavior”, NBER Working Paper 8651, 2001.
12. Robert McDonald, David Richardson and Thomas Rietz, “Investment Defaults and Retirement Savings Allocations”, TIAA Institute, June 2021.
13. Olivia Mitchell and Stephen Utkus, “Target-Date Funds and Portfolio Choice in 401(k) Plans”, Journal of Pension Economics and Finance 21(4), 2022 (NBER Working Paper 26684).
14. Olivia Mitchell, Gary Mottola, Stephen Utkus and Takeshi Yamaguchi, “Default, Framing and Spillover Effects: The Case of Lifecycle Funds in 401(k) Plans”, NBER Working Paper 15108, 2009.
15. Investment Company Institute, “A Closer Look at 401(k) Plan Target Date Fund Investors”, ICI Research Perspective 32(6), May 2026.
16. John Chalmers and Jonathan Reuter, “Is Conflicted Investment Advice Better than No Advice?”, Journal of Financial Economics 138(2), 2020.
17. John Shoven and Daniel Walton, “An Analysis of the Performance of Target Date Funds”, NBER Working Paper 27971, 2020.
18. Jonathan Parker, Antoinette Schoar and Yang Sun, “Retail Financial Innovation and Stock Market Dynamics: The Case of Target Date Funds”, Journal of Finance 78(5), 2023.
19. Morningstar, Mind the Gap 2026, August 2026. Ten years through December 31, 2025.
20. BlackRock, LifePath Index 2070 Fund summary prospectus, filed May 2026.
21. Schwab, Schwab Target Index Funds prospectus, 2026.
22. Nuveen, Lifecycle Index 2070 Fund summary prospectus, October 1, 2026.
23. U.S. Government Accountability Office, “Target Date Funds: Department of Labor Should Update Guidance” (GAO-24-105364), March 2024.
24. Pierluigi Balduzzi and Jonathan Reuter, “Heterogeneity in Target Date Funds: Strategic Risk-Taking or Risk Matching?”, Review of Financial Studies 32(1), 2019.
25. 29 CFR 2550.404c-5(e)(4)(i), qualified default investment alternatives.
26. Victor Duarte, Julia Fonseca, Aaron Goodman and Jonathan Parker, “Simple Allocation Rules and Optimal Portfolio Choice Over the Lifecycle”, NBER Working Paper 29559, revised 2026.
27. Aizhan Anarkulova, Scott Cederburg and Michael O’Doherty, “Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice”, working paper, March 2025 version. Later versions on SSRN may report different figures.
28. Cliff Asness, “Why Not 100% Equities”, AQR, February 2024.
29. Internal Revenue Service, 401(k) Resource Guide: Plan Overview.
30. U.S. Securities and Exchange Commission, Investor Bulletin: Target Date Funds, March 2025.

Editor’s note

Fund fees and allocations were checked against Vanguard, BlackRock, Schwab and Nuveen fact sheets and filings in November 2026. Plan versions of these funds carry their own fees; your plan’s fee disclosure is the authority for your account. This guide is educational and is not investment advice.