The Best Target Date Funds

You want to accumulate and preserve retirement assets in a Target Date Fund (TDF).

Your next step is to select the best Target Date Fund for your situation. The good news is you have a lot of choices. The bad news is you have a lot of choices therefore it is easy to make mistakes if you choose the wrong fund.

You need an objective process that will help you select the best TDF. Objectivity is important so you make an informed choice.

As a side-note you could build your own TDF, but that takes more knowledge and time.

Want to learn more? Contact GlidePath Wealth Management to talk to a retirement planner.

Selecting the Best TDF

If you are like most investors, you will begin your search for the best Target Date Fund by looking at the information on a rating agency website – for example, Morningstar, but you have to be careful. TDF ratings are usually based on performance. Higher ratings are usually based on higher performance, which over the past decade can mean higher allocations to U.S. stocks. Using hindsight, we can say this concentration boosted returns, but you need future performance, which may be different than past performance.

The best TDF will: (1) be diversified, (2) emphasize risk management, especially near the target date, (3) charge low fees, (4) provide an optimal glide path well into your retirement years.


Look at the asset allocation of your TDF when it is has 20 years or more to the target date. This will tell you how diversified the fund’s investments really are. Ideally, you would like to see global (U.S. and non-U.S.) stocks, global bonds, real estate, and other diversifiers like commodities and precious metals in the fund.

Diversification is your best strategy for managing your exposure to risk. However, you are not diversified if all of your investments are impacted by the same economic events. That is why real estate and other asset classes (commodities, metals) should be included in your TDF.

Risk Management

Look at asset allocation near the target date to determine how well protected you will be. Do not let your analysis be impacted by old thinking. For example, bonds with long maturities are not safe in a low interest rate environment. Safe investments include short term Treasury Bills and Treasury Inflation Protected Securities (TIPS). You’d like to see at least 60% of your TDF in these safe investments at or near the target date.


Average TDF fees have come down a lot over the past few years due to competition and lawsuits by pension plans that allege excessive fees. The average TDF fee is now .62% (62 basis points; 100 basis points is 1%).

Studies by Morningstar and others find more expensive TDFs do not reward you with superior performance. If you are going to pay a higher fee to a TDF you should be rewarded with increased diversification, better risk management, and improved performance.

Optimal Retirement Glide Path

If you plan to use your TDF throughout life, including retirement years, look for a glide path that starts with a low risk allocation and gradually increases risk during mid-retirement years.

Why re-risk? Let’s assume you drastically reduced your risk at or near retirement. Several years later you still have that low exposure to risk. Over longer time periods, capital market theory shows stocks outperform bonds and bonds outperform money market investments. Re-risking will improve performance, not every year, which in turn reduces your risk of running out of money late in life when you need it the most.

Manage Your Own

It is important to note, you could also create and manage your own Target Date Portfolio (TDP). Note this is Portfolio and not a Fund (mutual fund).  Your TDP would invest in low-cost Exchange Traded Funds. The portfolio would reflect your individual circumstances, requirements, goals, and tolerance for risk. Or, you could hire a firm to manage your TDP for you.

About the Author: Ron Surz is CEO and CIO of GlidePath Wealth Management an innovative money management firm that uses a patented investment process to invest retirement assets that are held outside qualified retirement plans. GlidePath manages Target Date, Invest-for-100, Special Situations and Recession Protection Portfolios.