Read the Article
One Small Change to Your Target Date Fund That Could Be Worth a Million Dollars
By Paul Merriman, with Chris Pedersen · PDF — Free download
Podcast & Video
🎧 Sound Investing Podcast
▶️ Watch on YouTube
What You'll Learn
01
Why target date funds are the closest thing the average investor has to a personal pension manager — and why roughly 70% of 401(k) investors already own one
02
How the median glide path actually works, and why one small bond allocation in your early years can quietly cost you a million dollars
03
The three weaknesses of every target date fund — and the one simple change Chris Pedersen's research shows can fix them
04
The "Easy" 2 Funds for Life: putting 90¢ in your target date fund and 10¢ in a small-cap value fund — what it adds, what it costs in risk
05
The Moderate and Aggressive versions — and how a 1.5%-per-year small-cap value tilt early in life can add 28% to your retirement balance
06
How to use the 2 Funds for Life Calculator and the Custom Target Date Allocation Calculator to design a glide path that fits your life
Tables & Tools
Key Takeaways
- About 70% of 401(k) investors today own some part of a target date fund — making this one of the most important conversations in the entire Boot Camp series.
- Target date funds are the closest thing the average investor has to a personal pension manager — but they're one-size-fits-all, fundamentally conservative, and have no tilt toward small-cap value.
- The "Easy" 2 Funds for Life — 90% target date fund plus 10% U.S. small-cap value — adds about half a percent per year and is likely worth a million dollars over a lifetime, with almost no extra risk.
- The "Moderate" version (1.5% × years to retirement in small-cap value) adds about 1.5% per year and roughly 28% more to the median expected retirement balance.
- The "Aggressive" version can add 40%–85% more to your median balance at retirement — with worst-case drawdowns only 6 percentage points wider than the target date fund alone.
- Small-cap value doesn't move in lockstep with large-cap or international stocks — that diversification is what lets you add return without proportionally adding risk.
- Before you retire, hire someone for an hour or two to walk you through a 25% loss in year one — and watch your spouse's eyes during that conversation.
- The 2 Funds for Life Calculator is the single most useful tool we offer for designing a real, personal glide path — explore it, don't just read about it.