Target Date Funds: What’s Under the Hood?

IB#17-2

The brief’s key findings are:

  • While nearly 60 percent of new 401(k) participants have savings in target date funds (TDFs), little research has looked under the hood of this investment vehicle.
  • This analysis uses a unique dataset with extensive information on the underlying mutual funds that TDFs hold.
  • The results show that TDFs:
    • often invest in specialized assets (e.g., emerging markets and real estate);
    • charge fees that are only modestly higher than if an individual investor assembled a similar portfolio on his own; and
    • earn returns that are broadly in line with other mutual funds.