Assets in target-date funds reached $1.58 trillion at the end of 2020. Many people have chosen to use target-date funds as an easy one-stop shop for their investment (and especially retirement) needs. It is simple, and it takes the decision-making out of an investor’s hands and puts it in the hands of professionals. However, not all target-date funds are the same. 

How Do Target Date Funds Work?

As mentioned, these funds offer instant diversification to investors. The funds themselves hold underlying assets, usually other mutual funds, across a variety of asset classes. Over time, the funds adjust their holdings and become more conservative.

Investors choose a fund that roughly coincides with their planned retirement year. For example, if you plan to retire in ten years, you could use a 2030 target-date fund. If you have 20 years before retiring, you would use a 2040 fund. The 2040 fund will have a higher allocation to stocks to reflect your longer time horizon. 

To vs. Through

The so-called “to” and “through” funds are very similar. Both diversify across asset classes and shift their allocations over time. The big difference lies in when those adjustments stop. For a “to” fund, the fund adjusts until its target year. At that point, the allocation becomes static, i.e., it will no longer change. 

A “through” fund, by contrast, will continue to adjust its allocations after it reaches its target year. The adjustments will continue for several years before they too become static – the exact number of years varies by the fund company. Some fund families eventually merge their target-date funds into a conservatively run income fund, while others maintain the funds at their final allocation. 

Which is Better?

Neither approach is inherently superior; each will do better in certain markets. As is usually the case in investing, the best approach will only be apparent in hindsight for a given time. 

Since the “to” funds lock their asset allocation at retirement, they tend to be more conservatively invested at that point. This will reduce the damage to a portfolio from a market downturn. On the other hand, a lower equity allocation will reduce potential portfolio gains during retirement. 

For the “through” strategy, a higher allocation to equities at retirement means higher potential returns over time. This approach is less concerned with a possible market drop and more concerned with longevity risk, i.e., the risk that you will outlive your money. 

Which Should You Choose?

If you are investing in a 401k or 403b account, you may not have a choice. You get whatever your plan offers. If the offering does not match your desired portfolio, you can allocate some funds outside the target date fund – for example, add an equity fund if you want more market exposure or a bond fund if you want less. If you do not want to delve into that (after all, avoiding those decisions is why you used a target date fund in the first place), you can “game” the system.

Say you are planning to retire in 2035, and you like the idea of the “to” fund approach. You are concerned about a market drop at retirement and, therefore, preservation of your portfolio is more important than growth. If your plan only offers “through” funds, what can you do? Instead of the 2035 fund, you could use the 2030 or even 2025 fund. Both will be more conservative than the fund that mirrors your retirement date, which is exactly what you want.

Conversely, if you prefer a “through” fund but only have “to” fund offerings, you could pick a fund with a target date beyond your planned retirement. That way, the fund would have a higher equity allocation at your retirement date and would continue to ratchet down equity exposure after that.


Target date funds can be an excellent tool for simplifying investors’ lives. As with all investments, though, be sure to do a little investigating to make sure you are getting what you need. 

David Crossman is a Senior Portfolio Manager with Bedel Financial Consulting Inc., a wealth management firm located in Indianapolis. For more information, visit their website at or email David at

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