By Chris Cristallo, CFP® | BGA 401k
We are in one of those market environments again—where headlines swing between tariff and inflation worries, geopolitical tension, and rate cut speculation. One week the market is up 3%. The next, it is down 4%. For participants in your 401(k) plan, this kind of volatility feels like whiplash.
And when emotions run high, bad decisions follow. That is why target date funds (TDFs) are such a critical tool for both plan sponsors and participants right now. Not only do they simplify investing, but they are specifically designed to reduce risk over time and help participants stay the course, even when markets get rocky.
Let’s dive into why that matters and what the data shows.
What Is a Target Date Fund?
A target date fund is a diversified, all-in-one investment option that aligns with a participant’s expected retirement year—usually grouped in five-year increments like 2045 or 2050. Younger participants have more equity exposure for growth. As the target date nears, the portfolio gradually becomes more conservative.
This systematic de-risking, known as the glide path, helps protect participants from volatility as they approach retirement.
Real Volatility, Real Results
The goal of a target date fund is not to outperform the market—it is to make the ride smoother and prevent people from jumping off at the worst time.
According to Morningstar’s 2023 Target Date Landscape, the average 2025 TDF had a standard deviation of 7.2%, versus 11.3% for a traditional 60/40 portfolio.
That may not sound dramatic, but in rough markets, it makes a big difference.
For example, during a major market downturn, a TDF might experience a moderate decline, but it typically holds up better than the broader market, which can drop significantly more.
TDF investors closer to retirement may experience less of the drawdown, helping preserve both account value and peace of mind.
The Behavioral Edge
Markets do not have to fall 30% to cause damage. Sometimes, the damage comes from within. When participants panic and move to cash or make drastic changes to their portfolio, they often lock in losses and miss the recovery.
Target date funds help mitigate this behavior. A 2022 J.P. Morgan Asset Management study found that TDF users were 20% less likely to change their investments during market volatility than non-TDF participants.
That consistency matters. In fact, consistent contributions + consistent exposure to a risk-appropriate portfolio is often the recipe for long-term success.
The QDIA Advantage
If you are a plan sponsor, one of the most important fiduciary decisions you can make is selecting a solid Qualified Default Investment Alternative (QDIA).
For most plans, a well-constructed target date fund series is the best fit. It ensures that participants who do not actively choose an investment option are still placed in a diversified, age-appropriate portfolio—one that reduces volatility risk over time and keeps them aligned with their retirement goals.
It is a default that actually works in their best interest.
Final Thoughts
Right now, with so much uncertainty in the market, your 401(k) participants need less noise and more clarity. Target date funds provide that.
They reduce portfolio volatility, improve participant behavior, and make it easier to stay invested during uncertain times. In a world where the wrong move at the wrong time can derail years of savings, that simplicity is powerful.
Want to evaluate your current TDF lineup or compare glide paths? I would be happy to help.
Together, let’s elevate the way we approach retirement programs.
Christopher A. Cristallo, MBA, CFP®
Qualified Retirement Plan Advisor
E: ccristallo@bgawealth.com
P: 404-602-0034