The 401(k) Strategy That Could Help You Retire Richer — With Less Effort

For the most disciplined 401(k) savers, success often comes from letting someone else make the investment calls. According to Vanguard, a record 67% of savers opted for a professionally managed investment portfolio last year. The payoff? Consistently narrower performance swings and fewer costly mistakes than do-it-yourself investors who choose and manage their own portfolios.

In fact, Vanguard found that the spread between the 5th and 95th percentile returns for savers invested in professionally managed accounts was just 4.9 percentage points in 2024, and it was even narrower at 4.3 percentage points for those invested in a single target-date fund (TDF). For everyone else, that gap was more than twice as wide, at 11 percentage points. The difference reflects what many seasoned advisors already know: Professionally managed accounts, and TDFs in particular, reduce the behavioral and structural pitfalls that often derail long-term performance.

Target-date funds, in particular, are popular because they give investors a “ready-made, professionally managed investment solution that adjusts automatically over time,” says advisor Avanti Shetye, founder of Wealthwyzr. “Most people don’t want to spend hours choosing investments, rebalancing, or figuring out the right stock-to-bond mix for their age, and with a TDF, that work is done for you.”

Why 67% of Top Savers Let Someone Else Pick Their Investments

Target-date funds (TDFs) are designed as all-in-one portfolios that automatically adjust their mix of stocks, bonds, and other assets based on a target retirement year, shifting gradually from stocks to bonds as retirement approaches. This feature, known as the fund’s glide path, combined with automatic rebalancing, helps investors maintain an appropriate level of risk without constant oversight.

For those with large balances, the structure also reduces stress and helps them stay the course during volatile markets. All of this has made TDFs popular among savers, with 59% of Vanguard participants opting to invest in just a single TDF.

Behaviorally, TDFs remove decision fatigue as well. “You pick the fund with your target retirement date, and the investment team handles the rest,” says Shetye. That hands-off approach can be the difference between sticking to a plan and making emotional moves that hurt long-term returns.

The Costly Mistakes DIY 401(k) Investors Make

Investors who manage their own 401(k) portfolios often fall into predictable traps. The most common, Shetye says, are chasing past performance, concentrating too much on one asset class, or holding too much cash. Without regular rebalancing, portfolios can drift far from an investor’s goals and risk tolerance.

The data supports this: DIY investors’ wider performance spread means that, while some outperform, many underperform—often due to poor timing, inconsistent contributions, or unsuitable asset mixes. Over decades and through the power of compounding, those gaps can translate into hundreds of thousands of dollars in lost potential growth.

How Target-Date Funds Automatically Fix Your Biggest Investment Blind Spots

TDFs embed discipline into the process and can help reduce the impact of emotions from the equation. The automatic rebalancing ensures that gains in one asset class don’t skew the portfolio’s intended risk profile, and the gradual shift toward bonds as retirement nears helps cushion portfolios from severe downturns when investors have less time to recover.

Shetye cautions, however, that while TDFs are a “great default option” for a 401(k), they’re not a one-size-fits-all approach. They can vary in fees, investment style, and how conservative or aggressive they are as you approach retirement. That’s why even with a TDF, it’s worth reviewing the glide path and underlying holdings to ensure they match your comfort level with risk.

The Bottom Line

For most 401(k) participants—especially those who would rather not micromanage their investments—simplicity wins. TDFs combine professional management, automatic adjustments, and behavioral guardrails that make it easier to stay invested through market swings. As Shetye puts it, “Target-date funds keep you invested, disciplined, and moving steadily toward your goals without getting caught up in the noise.”