Investing - Theory, News & General • Are there instances where a Target Date fund is not a good fit

Some people like Target Date funds. Some people do not like Target Date funds. I do not use Target Date Fund but like the idea of Target Date funds. I initially dislike Target Date fund but grown to like them. My initial dislike comes from their overly conservative allocation at retirement and that they can be pretty aggressive at the start. However, what made me change my mind are studies that indicate target date investors tend to ignore their portfolio and thus not panic sell.

This made me wonder in what cases should you not invest in a target date fund. Here are my thoughts.

• You hae most of your investment in Taxable - the issue is that target date funds are not tax efficient. The bond part will increase and make the fund increasingly tax inefficient. You can't exchange the bond with muni. Many of the Vanguard mutual fund are associated with their ETF, allowing them to escape capital gains, but this is not the case for Target Date fund. In 2021, Vanguard messed up and generated a very large distribution, though they are less likely to repeat that mistake. One work around is to use Target fund in tax advantage and use VT in taxable.
• You constantly monitor your portfolio and compare them to benchmark - Ideally, you should just invest in target date funds in your tax advantage account, making sure you save enough, and snooze for the next couple of decades. Part of its super power is that people don't look at it. However, if you are one of those people who constantly examine the portfolio, Target Date funds are not a good fit. Target fund starts out at 90% stock, which is pretty aggressive. People also don't understand Target Date fund and complain that it return less than the S&P 500.
• You have some complex withdraw strategy - I suspect Target date fund are polar opposite of people who use buckets. People who use bucket maintain different bucks like cash, bond, stock and have specific rules on when to withdraw from each bucket. A target date fund autobalance. In my opinion, bucket and the autorebalance strategy are sort of the same, they just have fixed income to avoid sequence of events.
• You don't have access to Target Date Index funds - Because Target Date fund has become popular, many vendors jump with their own variation which may violate the spirit of lifecycle investing. They may introduce active management which may increase turnover, employee dynamic allocation, increase expense, etc. Even Vanguard isn't immune to messing around with Target date composition, thought their changes have been less dramatic than in the past.

Statistics: Posted by gavinsiu — Sun Sep 20, 2026 8:52 am