Part 2: Target Date Funds vs. do-it-yourself portfolios

Now that we’ve reviewed Target Date Funds (TDFs) and do it yourself (DIY) portfolios, let’s look at what each approach may mean for you. From there, you can decide what feels right for you. Did you miss part 1 of the series? Read part 1 to learn the differences between TDFs and DIY portfolios.

The key tradeoffs

1. Time investment

• TDFs: Take as long as you need to check in once a year.
• DIY:  Plan to devote more time to managing your portfolio and stay on top of market news and economic shifts. Research, monitor, rebalance and adjust. 

2. Costs

• TDFs: Built-in management fees cover oversight, rebalancing and research. TDFs also include guardrails designed to help prevent emotional investment decisions.
• DIY: This can cost less with index funds and discipline. But costs may increase with frequent trading or selling.

3. Risk management

• TDFs: You can make an automatic “glide path” adjustment. Adjustments can be aggressive when young and conservative near retirement. No decisions during market drops.
• DIY: You have more control over risk. You’re responsible for staying disciplined when markets fall.

4. Customization

• TDFs: Designed for typical retirement timelines and circumstances.
• DIY: Complete personalization. Early retirement? Part-time work plans? These can be fully tailored.

5. Knowledge required

• TDFs: You need minimal knowledge. Would you feel comfortable selecting a fund based on a target retirement year?
• DIY: You need to understand asset allocation, diversification, rebalancing, expense ratios, behavioral finance and market cycles.

 Making your decision

Consider TDFs if you:

• Work 40+ hours weekly and don’t want financial planning as a hobby
• Are new to investing
• Want to set it and forget it
• Value predictability over customization

Consider DIY portfolios if you:

• Have more time to dedicate to researching and adjusting for market and economic shifts
• Enjoy researching investments
• Want more control
• Have unique circumstances

Taking action

If you choose TDFs:

1. Log in to your online retirement account.
2. Find the fund closest to your retirement year (for example, if you were born 1990, look for 2055).
3. Select it and allocate contributions.
4. Set an annual reminder to check in.

If you choose DIY:

Consider a three-fund portfolio:

• U.S. Stock Fund (60%–70% early career)
• International Stock Fund (20%–30%)
• Bond Fund (10%–20% early, more as you age)

Sample allocations by age group:

• 20s–30s: 70% US / 20% Intl / 10% bonds
• 40s: 60% US / 25% Intl / 15% bonds
• 50s: 50% US / 25% Intl / 25% bonds

You may want to:

• Set quarterly reminders for check-ins.
• Continue your investment education. 
• Document your plan.

*These portfolio and asset allocation suggestions are hypothetical and for illustrative purposes only. They are not a recommendation of a specific investment, asset allocation or portfolio strategy. Asset allocation and diversification do not ensure a profit nor protect against loss in a declining market. 

Remember

The best strategy is one you’ll stick with. Taking action is better than waiting to perfect your approach. Both paths can work. Still uncertain? You might consider starting with a TDF. You can switch to DIY later if desired. Your retirement future benefits from the decisions you make today.