Chapter 13: Target-date funds and one-fund portfolios

Forty years from retirement, the right portfolio is mostly stocks. Seven years past it, the right portfolio mostly is not. Between those two sentences sits a working lifetime of small adjustments that almost nobody wants to manage by hand, and a $4.8 trillion category built to manage them automatically. That is the size Morningstar's 2026 target-date research reports for target-date funds at the end of 2025, after growth of more than 20% in a single year, and most of the money arrived without anyone picking a fund at all. Automatic enrollment dropped a paycheck into the 401(k)'s default option, and the default had a year in its name.

Chapter 12 sorted goals onto shelves by calendar and left the longest shelf, the 10-plus-years one, with two finalists. This chapter examines the first: one fund that runs itself. Chapter 14 builds the second, the three-fund recipe, and the two chapters are really one decision viewed from both sides.

One fund in a trench coat

The mechanics come first. A target-date fund is a fund of funds: a single ticker whose only holdings are a few other funds, plus a schedule for shifting the mix between them as the year in the name approaches.

Open one up and the contents look familiar. A typical large index-based fund dated 2065 holds four index funds: a total US stock fund at roughly 54% of assets, a total international stock fund near 36%, a total US bond fund around 7%, and an international bond fund near 3%. The weights sum to 100%, and 90 of those 100 points are stocks. Put $10,000 in and the fund spreads it as $5,400 + $3,600 + $700 + $300. Readers who peeked ahead will recognize the cast. This is Chapter 14's three-fund recipe with one extra bond line, bought through one ticker, with the weights set by a committee instead of by you.

Two things follow from the trench coat. First, the diversification is real: thousands of stocks and bonds across every major market, exactly the cheap ingredients Chapter 5 told you to want. Second, the fund is complete on purpose. It already owns the US market, the international market, and the bond market, so adding another stock fund beside it rearranges your risk rather than spreading it. Chapter 15's overlap audit catches that mistake in two minutes.

The glide path is the product

What the wrapper actually sells is the schedule. The glide path is the rule that sets the stock-bond mix from the years remaining until the target date: stock-heavy while retirement is decades away, then shifting, in Vanguard's own description, toward "fewer stocks and more bonds" as the date nears.

The calculator below puts the schedule under your thumb. At its starting position, 40 years from retirement, the readout shows 90% stocks and 10% bonds: full growth mode. Slide toward the target year and the stock share steps down a little at a time until the mix reads 50/50 at the date itself. Keep sliding, and a fund on the default "through" setting keeps easing until it settles at 30% stocks and 70% bonds seven or more years past the date. The path is a stylized model of the big index-based series; the prospectus prints your fund's exact version.

The stretch past the target year is where the two designs split, and the widget's toggle shows the fork. A "to" fund reaches its most conservative mix at the target year and parks there, 50/50 in the model. A "through" fund treats the date as a waypoint and keeps shifting for years afterward, on the logic that retirement money has to last decades past the retirement party (the "to" and "through" labels follow Morningstar's definitions). Neither design is wrong, but they hold meaningfully different amounts of stock in the years right around retirement, which is exactly when balances are biggest and 2022-sized years hurt most.

What does a target-date fund cost?

The ingredients are cheap, so the question is the assembly fee. The broad index funds inside cost 0.03% to 0.05% a year on their own (Chapter 5's territory). The cheapest large packages charge close to that for the whole service: Vanguard's target retirement series averaged 0.08% a year at year-end 2025, by the company's own figures, and comparable index-based series from other large providers run near 0.12%. The category as a whole is pricier. Morningstar puts the asset-weighted average across all target-date funds at 0.27% for 2025, which means plenty of series, usually the ones built from the sponsor's active funds, charge several times what the cheap ones do. In dollars on a $10,000 balance, that is $8 a year at 0.08% versus $27 at 0.27%, and the gap compounds exactly the way Chapter 5's fee leak did. The bar from Chapter 4 transfers unchanged: an index-based series near 0.10% passes without drama, and a series above 0.50% should send you back to the plan menu to build the recipe yourself.

One fund or three?

For long-horizon money, both answers work, and the difference between them is small next to the difference between either one and not investing. The one fund wins on behavior: it rebalances itself, de-risks itself on schedule, and leaves you nothing to fiddle with, which for many investors is worth more than any basis point. It also wins by default inside a 401(k) that carries a cheap series, where it is often the best item on the menu. The three funds win on cost, 0.035% against 0.08% and up, on control of the stock-bond dial and the international share, and decisively in taxable accounts, for reasons priced below. Chapter 16's playbook folds this into the full first-fund path; the table shows the same $10,000 both ways.

The two columns differ on purpose. The 2065 fund sits 40 years out on its glide path, so it holds 90% stocks; Chapter 14's reference split is 80/20 with 30% of stocks international. More importantly, the left column will drift toward bonds on its own schedule for the next four decades, while the right column moves only when you move it. The choice is between an autopilot and a steering wheel.

The taxable-account caveat

Nearly all target-date funds are mutual funds holding mutual funds, and Chapter 2 explained what that wrapper does when investors leave: the manager sells holdings for cash and the remaining shareholders inherit the capital gains bill. In 2025, 52% of mutual funds distributed capital gains versus 7% of ETFs (State Street research). A target-date fund adds its own twist, because the glide path itself forces selling: every scheduled step from stocks toward bonds is a sale inside the fund, in good markets and bad. Inside a 401(k) or IRA none of this matters; that is their natural habitat. In a taxable brokerage account, the same fund can hand you a tax bill on gains you never touched; the Finvest Tax Playbook prices that surprise. The placement rule is short: target-date funds belong in sheltered accounts, and taxable money gets Chapter 14's recipe in ETF form, with Chapter 2's plumbing working for you instead of against you.

Where people go wrong

Picking the date by birthday arithmetic. Two people retiring in 2055 do not share a stomach, and the year in the name is only a risk dial. Elaine turned hers down by choosing an earlier date; an investor with a pension and a calm stomach can turn it up with a later one. The glide path chart, not the label, says what you own today.

Adding funds beside it. The trench coat already owns the whole market. An S&P 500 fund parked next to a target-date fund quietly overweights the same giant US companies and undoes the mix the glide path was set to hold, and no statement ever shows you the combined picture. One account, one line. Chapter 15's audit exists for the portfolios that learned this late.

Holding it in a taxable account. The wrapper distributes gains and the glide path manufactures them. Sheltered accounts absorb that without consequence; taxable accounts pay for it yearly.

Pricing the category by its cheapest series. Two funds named for the same year can charge 0.08% or three-plus times that; the 0.27% asset-weighted average for 2025 (Morningstar) says expensive series still hold plenty of money. Run Chapter 4's line 1 before trusting any year-shaped name.

Expecting the wrong landing. A "to" holder who thinks the fund keeps de-risking, or a "through" holder shocked to own half stocks on retirement day, both read the year and skipped the design. The fund page states which one you bought.

Key takeaways

• Target-date funds held $4.8 trillion at the end of 2025 after growing more than 20% that year (Morningstar's 2026 target-date research), mostly because they are the standard 401(k) default.
• Under the trench coat sits Chapter 14's recipe: a typical index-based 2065 fund holds four index funds at roughly 54% + 36% + 7% + 3% = 100%, with 90 points in stocks.
• The glide path is the product: about 90% stocks at 40 years out, easing to 50/50 at the target date, and settling near 30/70 seven or more years past it in a "through" design, per the stylized model in the calculator; "to" designs park at the date, and the prospectus governs.
• Price the assembly fee: Vanguard's series averaged 0.08% at year-end 2025 and comparable index-based series run near 0.12%, while Morningstar's asset-weighted category average was 0.27% for 2025; near 0.10% passes, above 0.50% build the recipe yourself.
• The wrapper and the glide path both generate taxable distributions (52% of mutual funds passed out capital gains in 2025 versus 7% of ETFs, State Street), so keep target-date funds in sheltered accounts and give taxable money to Chapter 14's ETFs.
• The date is a risk dial: pick it by the mix you can hold through a 2022, the way Elaine did, and never park a second stock fund beside it.

Sources: Morningstar target-date research · Vanguard Target Retirement Funds · State Street on ETF tax efficiency · ICI fee trends 2025 (Research Perspective) · Investor.gov on mutual funds · Finvest Tax Playbook