Perspectives : Investment | November 17, 2023

TDF performance: A marathon, not a sprint 

Originally published May 18, 2022
By their nature, target-date funds (TDFs) are long-term investments. They're designed for investors who may remain invested in the TDF for decades—and potentially over their entire lifetimes.
But human nature can tell another story. Short-term performance can grab our attention, especially when markets shift dramatically like they have over the past several years. Participants can get excited or distraught when markets move significantly in either direction. 

Despite these distractions, retirement plan fiduciaries have an obligation to remain focused on the long term. That requires due diligence in monitoring TDF performance and sufficiency, which is not necessarily as straightforward a task as some might imagine.

There are different metrics we believe are needed to adequately gauge whether a TDF is achieving its mandate for retirement investors. There are also challenges associated with analyzing and comparing the TDF series, specifically the presence of multiple vintages, each with its own asset allocation, and the different approaches that each TDF provider uses for everything from glide-path construction and sub-asset allocation to benchmark implementation and rebalancing.

In this article, we build upon the discussion of TDF assessment metrics by layering in another critical element: the most appropriate time frames over which to gauge TDF sufficiency. After all, TDFs that dazzle in one year but lag in another risk not capitalizing on the benefits of consistency.

What's more, short-term performance benchmarking doesn't help TDF investors answer the most important questions:

  • What long-term return does an investor need to earn to accumulate enough money for retirement?

  • Does the investment provider expect its mix of embedded asset allocation guidance and fund selections to meet this return threshold?

  • Is the fund meeting these expectations?

  • What risks are implied by these expectations?

Answering these questions in detail is beyond the scope of this article. However, our research continues to affirm that relative long-term consistency, not short-term sprints, can lead to better retirement readiness outcomes for TDF investors. 

An appropriate time frame for performance measurement

In our digitized world, we're conditioned to consume bite-size chunks of information that focus on one-year, quarterly, or even daily fund performance figures. While understanding the drivers of short-term performance ensures a TDF is performing as expected based on the underlying asset allocation, we think it's critical not to over-anchor to short-term performance.

The short-term performance race is often decided by how aggressive the glide path is relative to peers. But the TDF with a higher allocation to stocks, one that leads the pack when stocks are rising, is vulnerable to underperforming in a stock market downturn. 

The value of consistency 

As our clients know well, Vanguard has always concentrated on the long-distance run, not the sprint. Given the potential multidecade investment horizon and the mandate of a TDF to help investors achieve retirement readiness, we place a high value on the consistency of results, not on a race to “break the tape” in any given year.

Just as professional marathoners know the importance of not running too fast too early, we don't want our Target Retirement Funds to be racing to the lead in a quarter or year only to later fall back to the rear. We think investors are best served when TDFs seek to avoid extremes in their returns and instead focus on consistency. Their role as qualified default investment alternatives requires a careful approach. 

Figure 1. Vanguard Target Retirement 2025 Fund's track record

The annual total return of Vanguard Target Retirement 2025 Fund as ranked in its Morningstar peer group is indicated in the years 2013 through 2022. Only funds with a minimum 12-month history are included in the annual peer-group results. The number of funds in the annual rankings range from 150 in 2013 to 219 in 2022. Only 138 funds with a minimum 10-year history are included in the 10-year annualized total return result. The Morningstar 2025 peer group was chosen because it is larger and has a longer track record than most other TDF vintage peer groups. Visit the Vanguard Target Retirement 2025 Fund for more information.
Sources: Vanguard and Morningstar, as of December 31, 2022.
Note that the competitive performance data shown represent past performance, which is not a guarantee of future results, and that all investments are subject to risks. For the most recent performance, visit our website at There may be other material differences between products that must be considered before investing.
Figure 1 illustrates the value of this approach with the performance and associated Morningstar peer-group ranking of Vanguard Target Retirement 2025 Fund in each of the last 10 years. Our prudent asset allocation strategy means that yearly peer performance rankings typically landed around the second quartile. This consistency translated into a 10-year annualized total return that ranked in the top quartile. 

Figure 2. A history of consistently strong risk-adjusted performance 

Notes: Standard deviation was used for annualized risk. Results will vary for other time periods. All funds in the Morningstar peer group with a minimum 3-, 5-, or 10-year history, respectively, were included in the comparison. There may be other material differences between products that must be considered before investing. Note that the competitive performance data shown represent past performance, which is not a guarantee of future results, and that all investments are subject to risks. Investment returns and principal value will fluctuate, so investors' shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. For the most recent performance, visit our website at
Sources: Vanguard and Morningstar, Inc., as of December 31, 2022. Vanguard Investor Shares highlighted.

To expand on this idea, Figure 2 presents another perspective on the benefit of Vanguard's risk-controlled approach. The graph shows relative performance over 3-, 5-, and 10-year periods, with risk measured on the horizontal axis and annualized returns on the vertical axis. We focus on the risk-adjusted returns because it's important to be rewarded over time for the age-appropriate risk level of a portfolio. Risk-adjusted returns are also the most useful measure for comparing funds because they tell you whether a particular fund is taking on unnecessary risk to generate a higher total return.

Note that Figure 2's red dots represent Vanguard vintages, while the other scattered dots represent the rest of the TDF peer group. While the performance of other TDFs varies from above average to below average along the time axis, the performance of Vanguard Target Retirement Funds remains in the upper echelon.

Three vintages in our Target Retirement Fund suite—the Target Retirement Income, 2025, and 2050 funds—represent a useful cross-section to examine, as they show key points along the glide path. Each fund has a track record of 15 years or longer, and each fund ranked in the top quartile of its average performance rankings against its Morningstar peer group for 10-year rolling periods from near their inception to the end of 2022. Averaging out their rankings over those rolling periods, each fund outperformed its peer-group average 100% of the time.1

Short-term consistency, long-term outperformance

In short, the runner training for a marathon needs to know how to keep a sustainable pace to reach the goal in the targeted time frame. Outperforming a peer group most of the time in the short run while staying within a prudent target asset allocation raises the chance of notable outperformance in the long term.

Our Target Retirement Fund series launched in 2003, making them among the earliest TDFs to be index based. They've navigated many different market environments—good, bad, and everything in between—and through it all, year in and year out, our fund suite has provided a consistent experience for our investors. This kind of long-term performance track record can provide plan sponsors with the confidence that Vanguard Target Retirement Funds remain a proven way to position participants for retirement readiness and financial well-being. 

1The three vintages were chosen because they represented scenarios for those who are well into retirement, those nearing retirement, and those further from retirement, and because each fund has a track record of at least 15 years. The analysis reviewed 10-year returns on a rolling quarterly basis from June 30, 2006, through December 31, 2022. Only competing funds with a 10-year history for the relevant period were included. For the Income Fund, the number of funds in the peer group ranged from 35 in the earliest periods to 111 in the most recent periods; for the 2025 Fund, from 10 to 143; and for the 2050 fund, from 26 to 130. Vanguard Target Retirement Income Fund ranked in the top quartile 63% of the rolling 10-year periods (17 out of 27 periods) and outperformed the peer-group average in all those 10-year periods. Vanguard Target Retirement 2025 Fund ranked in the top quartile 89% of periods (24 out of 27) and outperformed the peer group average in all those periods. Vanguard Target Retirement 2050 Fund ranked in the top quartile 70% of periods (19 out of 27) and outperformed the peer-group average in all those periods. Results will vary with different time periods. Sources: Vanguard and Morningstar, Inc., as of December 31, 2022. Note that the competitive performance data shown represent past performance, which is not a guarantee of future results, and that all investments are subject to risks. For the most recent performance, visit our website at


  • For more information about Vanguard funds, visit or call 800-523-1036 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
  • All investing is subject to risk, including the possible loss of the money you invest.
  • There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. The Income Fund has a fixed investment allocation and is designed for investors who are already retired. An investment in the Target Retirement Fund is not guaranteed at any time, including on or after the target date.