Ever notice how we go through life blissfully eating and using things without the faintest idea what’s actually in them? We trust labels like “beef,” “cheese,” and “fragrance” as if they’re self-explanatory, when in reality they’re closer to mystery novels. Taco Bell claims their beef is 88% real meat (though I’m skeptical), which raises the deeply uncomfortable question: what’s the other 12%: Ambition? Sawdust? Regret? And don’t even get started on hot dogs, the food equivalent of a “don’t ask too many questions” warning label.
Then there’s imitation crab—an identity crisis rolled up neatly in your California roll, made from pulverized white fish and optimism. The truth is, we live in a world where “cheese product,” “meat-like,” and “all-natural scent” have become their own food groups. It’s both horrifying and oddly impressive: humans will apparently eat anything, as long as it’s wrapped in a tortilla or dunked in soy sauce.
But here’s the twist — sometimes the mystery is part of the magic. Think of fine dining: half the time you don’t even know what you’re eating, but it’s plated like art, described with words like “reduction” and “essence,” and tastes incredible. In the right hands, mystery can be delicious — even good for you.
And it’s not just food. Many of us are also serving up financial mystery in our retirement accounts. Target date funds—those “set it and forget it” investments designed to age gracefully with us—can be great. But just like your late-night taco, you should probably pause to ask: What’s in your fund? Let’s unpack what’s inside to find out whether your fund’s serving fine dining or drive-thru fare — and why sometimes, both can be acceptably satisfying.
Why Target Date Funds Can Be Great
Let’s start with the good news: target date funds exist because most people don’t have the time, desire, or expertise to manage their own investment mix—and that’s okay. In fact, target date funds offer three major benefits:
- Age-appropriate allocation: When you’re younger, your fund holds more stocks to help you grow your savings. As you get older, it gradually shifts toward bonds to reduce risk.
- Automatic adjustments: This “glide path” adjusts automatically as you approach retirement, so your risk level changes over time without you lifting a finger.
- Built-in rebalancing: The fund keeps your portfolio on track by periodically selling some of what’s grown too much and buying what’s fallen behind—basically, it tidies up after you. This is one less task on your to-do list.
In short, target date funds are like the slow cooker of investing — toss your money in, set it to the year you turn 65, and let it simmer for decades while you live your life. This is perfect if you want your retirement money managed responsibly while you’re busy forgetting your login and password. (Okay, to be clear, that’s a joke – we recommend occasionally checking and always maintaining access to your retirement accounts…but the point is that you could avoid checking altogether, and you’d still, most likely, be okay.)
The Cost of Convenience
But convenience comes at a cost—and sometimes, it’s a steep one. Every fund charges an expense ratio, which is the percentage of your money that goes toward management fees each year.
- A low-cost fund might have an expense ratio under 0.2%, meaning you pay $20 per year for every $10,000 invested. Some target date funds have expense rates as low as 0.08%; even if your account balance were $1,000,000, you’d be charged only $800/year for the benefits extolled above and the peace-of-mind that comes with them. That may be one of the best deals on the market today!
- A high-cost fund might charge 0.7% or more, which sounds small until you realize that’s a whopping $7,000 per year on that same $1,000,000 account balance.
- Though it differs for every person, every situation, and, perhaps most importantly, it depends on the account balance, I consider anything below 0.2% to be a good deal, expense rates between 0.2-0.5% to be middle of the road, and anything above 0.5% to be relatively high. A high expense rate paired with a large account balance should make you at least consider what other options you have and whether it makes sense to construct a similar portfolio at a lower cost. (More on that in a bit: talking in expenses rates is relatively meaningless until they’re applied to the account balance to understand the dollar amount you’re actually paying.)
Sometimes 401(k) plans sneak in a few extra “surprise fees” — administrative costs, advisory charges, maybe even a tip jar for the plan’s middlemen — all piled onto the fund expense ratios. The result? Your all-in costs can creep above 1%, making every investment option (target date funds and non-target date funds alike) look pricey. In those cases, the target date fund might not be the best choice, but it’s often the least bad one — like picking the least soggy sandwich in the vending machine.
Still, even with high fees, it often makes sense to keep contributing. The tax benefits of a 401(k) usually outweigh the cost bloat. And when you change jobs or retire, you can roll your assets into a lower-fee IRA or new plan. Better yet, you can always nudge HR to explore cheaper options — politely, of course (nothing gets HR’s attention like a well-informed employee armed with expense ratio charts).
A Brief Tangent on Active vs. Passive Funds
Passively managed index funds are the quiet overachievers of the investing world — they don’t try to beat the market, they just are the market. Because they skip the fancy stock-picking and crystal-ball consulting, their fees tend to stay refreshingly low.
Actively managed funds, on the other hand, charge higher fees for the privilege of trying to outsmart the market — kind of like paying extra for a weatherman who still gets the forecast wrong half the time. And according to the most recent S&P Indices Versus Active (SPIVA) report, more than 85% of active large-cap stock funds have failed to beat the S&P 500 over the past decade.
At Aptus, we prefer the simple, reliable approach: low-cost index funds that quietly get the job done — no drama, no cape, just solid long-term results.
So, What’s Actually in a Target Date Fund?
Most target date funds hold a mix of:
- U.S. stocks
- International stocks
- Bonds
- Real estate (sometimes)
As you age, the stock portion gradually decreases while the bond portion increases. The exact proportions and pace of this shift—the “glide path”—vary from one provider to another.
But here’s the key: not all target date funds are built the same. Some are a clean mix of index funds (transparent and low-cost), while others are layered with active funds, sub-funds, and hidden fees.
Different Providers, Different Costs
Here’s a quick lay of the land:
- Vanguard – Low-cost, index-based, simple. (Expense ratios often around 0.08%.)
- Fidelity – A mix of low, medium, and high-cost options (more on that below).
- Schwab – Two types, a passive low-cost fund and a more expensive actively managed fund family.
- BlackRock – Typically low-cost, often used in employer 401(k) plans.
- State Street – Competitive and low-cost.
- American Funds – Active management. Often on the expensive side, especially when layered with advisor or plan fees.
- T. Rowe Price – Active management; higher costs.
In short, some providers serve you a clean salad. Others, a financial hot dog. And while I’m as likely to get sucked into the next diet fad as the next person, it’s important to remember that hot dogs have their time and place, too – everything in moderation (and, in the case of target date funds, when applied to the right situation).
While it’s great to look at expense rates, when working with clients, I try to quantify decisions with dollar values whenever possible. Here’s the breakout of several main fund families along with their expense rates and the amount you’d be charged annually at different account balances:
If you’ve been a diligent saver and have amassed $1M in your retirement account portfolio, American Funds will charge you almost ~$7,000/year (!) to manage it for you. If you believe in active management, perhaps that fee is worth it. Don’t count me among that group, though – referencing the SPIVA study cited above, I’ll elect to control what I can control (i.e. keep my expenses low) and bet that the historical trend of passive funds outperforming active managers will continue to hold.
Conversely, if you have access to a Vanguard fund, you pay $800 for peace of mind that you’re in an optimal allocation, don’t need to rebalance, and don’t really need to think about your investments. In my mind, that’s money well spent.
It’s also worth noting that even the “financial hot dogs” of the bunch — think American Funds or T. Rowe Price — can have reasonable fees when applied to smaller account balances. That’s often the case for many doctors or medical professionals just getting started in their careers.
For a mid-30s physician fresh out of training, with a working spouse juggling two careers and young kids, paying a few hundred bucks each year for simplicity and peace of mind can make sense.
After all, the goal of financial planning for relatively high-income professionals who spend reasonably isn’t to win every inning — it’s to keep hitting singles and doubles while avoiding catastrophic inning-ending double-plays when you have runners in scoring position. Target date funds, even those with higher expense ratios, generally accomplish that.
Yes, it’s often easy to build your own low-cost portfolio, but for some people, the savings just aren’t worth the extra effort — especially when your balance is still modest.
Fidelity: Three Flavors, Three Price Tags
Now, back to our dive into and about the funds. Above, I alluded to the fact that Fidelity doesn’t have just one set of target date fund families, but rather three different sets. This is where things get confusing:
- Fidelity Freedom Index Funds – These are the low-cost, index-based options (expense ratios around 0.12%).
- Fidelity Freedom Blend Funds – A mix of index and actively managed funds (mid-range, around 0.4-0.5%).
- Fidelity Freedom Funds (original) – Fully active management and expensive, as high as 0.68%, which is unacceptable for what’s basically a mutual fund of mutual funds.
So, if you have access to the Fidelity target date funds in your retirement account, you need to understand which family of funds you have access to. If you’re going to use Fidelity’s funds in a non-employer retirement account (e.g. your IRA), the “Index” version is the one you want. The others are like ordering sushi and getting imitation crab—sure, there’s a time and a place when a California roll hits the spot, but I wouldn’t classify it as Michelin-star cuisine.
Outside of Costs, How Different are the Funds?
Expenses matter – they matter a lot. But outside of expenses, the proportions can be pretty similar. Below, I’ve taken the different allocations for many of the main target date funds to illustrate:
As of October 2025
Here are a few observations:
- The allocations are pretty similar, especially for the “good guys.” Vanguard, Fidelity, Schwab, and BlackRock all own between 85-92% in US and international stocks. In the long run, the difference between an 85 vs 92% stock allocation isn’t going to make or break your financial independence date.
- Some funds hold international bonds, others don’t. Some funds break out real estate explicitly, others don’t. 20 years from now, nobody knows which will do better, and it probably won’t make much of a difference.
DIY: Build Your Own Target Date Fund
If you have access to one of the low-cost options – Vanguard, Fidelity the lowest priced tier), Schwab (comprised of passive funds), BlackRock, etc. – I generally recommend investing in it. The benefits are hard to beat for a very reasonable price.
If you don’t have access to one of them, or you have access to one of the higher-priced options and would rather build it yourself, you can usually accomplish that goal using 3-4 simple, low index funds (if available in your retirement plan). When the families I work with only have access to the higher-priced target date funds and have the time/desire to build a similar portfolio with lower index costs, I often recommend building it – it only takes a few minutes each year to rebalance your allocation, and doing so not only saves you money, but is also a good learning experience.
Some 401k plans serve up an undesirable combo platter of high-fee target date funds with a side of overpriced mutual funds. Yum. In those cases, just fill your plate with the least-offensive options, recognize that the tax benefits likely outweigh the high costs, and plan a graceful transfer of what you’ve accumulated when you leave your job (likely by transferring it to your new plan).
If you decide not to use a target date fund, here are the key ingredients you’ll need to build it yourself:
- A U.S. stock index fund (a total market index fund works well, or potentially a blend of an S&P 500 index fund and a small cap fund for additional diversification
- An international stock index fund (ideally one that includes developed and emerging markets
- A U.S. bond fund (as your bond allocation grows, you might wish to pepper in some international bonds and/or inflation-protected bonds for additional diversification)
From there, you can mimic a target date fund’s allocation. For example, if you’re 40 years old, you might hold 85% stocks / 15% bonds. You can revisit your allocation and rebalance it annually when you update your financial plan. (I meet with clients once per year for an annual review meeting, and we discuss and take care of it then).
It’s also worth mentioning that while rebalancing is an important part of keeping your investments aligned with your goals, there’s no science suggesting you need to do it frequently. In fact, most research shows that rebalancing once a year is perfectly sufficient. The process itself doesn’t have to be complicated or time-consuming; with modern tools and automated options, you can usually review and rebalance your portfolio in just a few minutes.
The Bottom Line
Now that you know what’s inside target date funds, you can see they’re not all created equal. Some are well-balanced, transparent, and low-cost, while others quietly chip away at returns through layers of active management and hidden fees. Understanding what you’re actually invested in helps you make smarter, more intentional decisions — and ensures your “set it and forget it” strategy really works for you.
Knowing what’s in your food is good for your stomach. Knowing what’s in your investments is good for your future.