“Do‐It‐Yourself” Target‐Date Funds and Retirement Investing

ABSTRACT Target‐date funds were introduced three decades ago for retirement‐investing purposes and now hold more than $4 trillion in assets. They are often the default in companies' 401(k) retirement plans. The annual management fees on these funds have been declining and now average 0.29%. While the decline in target‐date fund fees is to be welcomed by investors, those annual fees can compound to erode investors' returns over the decades‐long time horizon involved in investing for retirement. Here, it is shown that an alternative is for investors to construct a portfolio of lower‐fee index funds that can be managed in such a way as to mimic the operation of a target‐date fund, with near‐zero fees. This low‐fee “do‐it‐yourself” alternative to investing in target‐date funds has the potential to upend the target‐date fund industry.