Perspectives : Investment | May 31, 2023

TDFs or financial advice?

How about both?

Read time: 8 minutes

Defined contribution plan participants have varied resources, risk aversion, constraints, and objectives. Providing a path to financial wellness for such a diverse population requires a spectrum of solutions.
We believe that advice is the most holistic and flexible solution and, for this reason, suggest that plan sponsors provide an advice option to their participants. At the same time, we recognize that not every participant is willing or able to engage in an advised relationship. For these participants, an intuitive and personalized self-directed experience is essential.

How does a participant decide between a self-directed path and advice?

First, it’s important to keep in mind that the two approaches are not in conflict. They are simply different means to the same end: financial well-being.

Second, while there are benefits and trade-offs to consider for each option, individuals may value these factors differently. For example, someone with a single financial goal and relatively straightforward needs may still want advice for the emotional support it provides.

Finally, this is not a onetime, irrevocable decision between self-directed and advice. A participant’s best-fit approach will likely vary over time and with changing circumstances.

With this backdrop, we present key factors that participants should consider when evaluating these two options and weighing how to best chart their path toward financial wellness.

Key considerations

  Self-directed* Advice

For participants who can set their financial goal(s) and create a road map to help achieve them.

For participants who:

  • Need help setting and planning for a goal or range of goals, including funding retirement, saving for health care, starting a college fund, and reducing debt.
  • Value the benefit of reminders and calls to action to help drive progress toward their goal(s).
Financial planning

For participants with straightforward financial needs. For example, they may have:

  • Limited flexibility in the timing of their Social Security claim.
  • Most of their assets in tax-deferred accounts and, therefore, no need for tax-planning strategies.

For participants with complex financial needs that may necessitate holistic planning. For example, they may have:

  • Flexibility in the timing of their Social Security claims.
  • Assets among accounts with different tax treatments (tax-deferred, after-tax) appropriate for tax management strategies (Roth conversion, asset location, tax-loss harvesting).
  • Need for advice to optimize saving and spending behaviors.
Investment portfolio

For participants with a preference for:

  • Age-appropriate target-date funds (TDFs) or other diversified single-fund solution.
  • Straightforward investment strategies and asset classes.

For participants with a preference for:

  • Portfolio personalization regarding asset allocation and glide-path construction specific to individual goal(s), constraints, and risk tolerance.
  • More complex asset classes and strategies such as alternatives and active management.
  • Customization regarding environmental, social and governance (ESG) or inflation protection strategies.
Time constraints

For participants who are:

  • Willing and able to periodically review portfolio and progress toward goals.
  • Comfortable leveraging financial planning and portfolio construction tools.
  • Willing and able to make changes in response to life events as required (if applicable).
  • Unwilling to engage in an advisor relationship.

For participants who have:

  • A preference for ongoing advice and investment management per the financial plan, whether delivered through an all-digital platform or a hybrid service with a personal advisor.
  • Value for access to advisor-led consultation as needed, such as when navigating certain life events.
Behavioral and emotional needs 

For participants who have:

  • The ability to maintain a disciplined investing strategy and avoid knee-jerk reactions to short-term market volatility even when extreme.
  • The ability to maintain a disciplined saving strategy and stay on track with goals.
  • Little to no need for behavioral coaching or emotional support when markets are volatile.

For participants who value:

  • Peace of mind knowing that they are receiving guidance from a trusted advisor.
  • Behavioral coaching and emotional support, especially during periods of market turmoil, to help avoid performance chasing and panic selling.
  • Guidance from an advisor on changing life situations and evolving needs.

* Assumes the self-directed participant uses an age-appropriate target-date product or other similar single-fund solution.

The Vanguard way

At Vanguard, we offer both a robust do-it-yourself (DIY) experience and a range of advice solutions. We designed this spectrum of options to provide participants with the support they need along with the level of engagement they prefer.

For those participants on a self-directed financial journey, Vanguard’s Target Retirement series is intended to be held throughout their entire life cycle, serving as a single investment option from first contribution through retirement.

The Target Retirement series is based on our decades of portfolio construction expertise and time-tested investment principles and is designed to meet the investment and retirement income needs of a diverse population. For example, designed as an opt-in alternative to our Target Retirement Income strategy, Vanguard Target Retirement Income and Growth Trust provides a higher equity allocation upon retirement (50% stocks, 50% bonds) and is designed for investors with a higher risk tolerance in retirement. DIY participants also have access to a variety of free guidance tools, guaranteed income options, and educational materials to help with planning their financial goals.

For those with more complex financial situations, a need for personalized guidance, or simply a desire for ongoing behavioral coaching and support, we offer a suite of advice options. These include digital advice, a personal advisor, or a onetime consultation with an advisor. Our advice services can deliver substantial value through comprehensive financial planning, improved portfolio outcomes, emotional support, and time saved.

We offer this spectrum of financial wellness solutions—both DIY and advice— because we understand the importance of flexibility. We understand that participant circumstances and preferences vary over time. We understand that a participant who initially chooses the self-directed option may then decide they need advice and want to change paths, or vice versa. And with our approach, they can do just that. Participants aren’t locked into traveling one path forever.

We’d like to thank Evan Wolf and Matt Nadler in Vanguard Participant Advice & Wellness for their invaluable contributions to this commentary.



  • 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 possible loss of principal.
  • Diversification does not ensure a profit or protect against a loss. 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 and Trusts 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. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.
  • Vanguard is responsible only for selecting the underlying funds and periodically rebalancing the holdings of target-date investments. The asset allocations Vanguard has selected for the Target Retirement Funds are based on our investment experience and are geared to the average investor. Investors should regularly check the asset mix of the option they chose to ensure it is appropriate for their current situation.
  • Vanguard Target Retirement Trusts are not mutual funds. They are collective trusts available only to tax-qualified plans and their eligible participants. Investment objectives, risks, charges, expenses, and other important information should be considered carefully before investing. The collective trust mandates are managed by Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc.
  • Vanguard’s advice services are provided by Vanguard Advisers, Inc. (“VAI”), a registered investment advisor.
  • The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI’s Form CRS and each program’s advisory brochure here for an overview of the program.
  • VAI is a subsidiary of The Vanguard Group, Inc., and an affiliate of Vanguard Marketing Corporation. Neither VAI, PA, Digital Advisor, Situational Advisor, VGI, nor VMC guarantees profits or protection from losses.
  • ESG funds are subject to ESG investment risk, which is the chance that the stocks or bonds screened by the index provider or advisor, as applicable, for ESG criteria generally will underperform the market as a whole or, in the aggregate, will trail returns of other funds screened for ESG criteria. The index provider or advisor’s assessment of a company, based on the company’s level of involvement in a particular industry or their own ESG criteria, may differ from that of other funds or an investor’s assessment of such company. As a result, the companies deemed eligible by the index provider or advisor may not reflect the beliefs and values of any particular investor and may not exhibit positive or favorable ESG characteristics. The evaluation of companies for ESG screening or integration is dependent on the timely and accurate reporting of ESG data by the companies. Successful application of the screens will depend on the index provider or advisor’s proper identification and analysis of ESG data. The advisor may not be successful in assessing and identifying companies that have or will have a positive impact or support a given position. In some circumstances, companies could ultimately have a negative or no impact or support of a given position.

Kimberly Stockton  Senior Manager and Investment, Research Analyst


Jeff Seegers    Investment Analyst