Ep. 606 — Deep Dive: Target-Date Retirement and Bond Funds | Cody Garrett

I'm confused about the 8 fund approach (1 global equities and 7 bond ladders that mature each year). Year 1, you use the bond bucket #1, but don't you have to liquidate some of the equities to set up bond bucket #8? Cuz if not, 7 years later, you're out of bonds that mature and if that lines up w a crash, you can't set up the next 7 bond buckets without selling at a big dip? So then you're still exposed to the equity volatility every single year since you're selling to buy bonds… help me if I'm not understanding correctly.

Thank you, Cody, for running the numbers comparing long-term returns for the different Target Date funds. So interesting - the big difference in returns! Not super surprising because, like you mentioned, they might be all using the same ingredients, but with a different recipe. But the amount of variance is pretty wild! Thanks again to Brad and Cody for so generously sharing your expertise.

One of the biggest misconceptions I see is that people assume a target date fund is a standardized product—it’s not. The target year is just the label the underlying asset allocation, international exposure, bond strategy, glide path, and fees can vary dramatically between fund families.

The bigger lesson isn’t that target date funds are “good” or “bad.” It’s that investors should understand what they own instead of relying on the name alone. For many people, a low-cost target date fund is still a perfectly reasonable choice. For others, building the portfolio yourself may provide more control and lower costs.

Behavior will always matter more than finding the “perfect” portfolio. But knowing what’s under the hood helps you stick with your strategy when markets get rough.

One thing worth adding is that there are AI tools available now that can help investors analyze markets, compare investments, identify potential opportunities, and even assist with trade planning. They’re not crystal balls and they don’t guarantee the best trade, but they can be valuable decision-support tools when combined with solid investing principles and risk management. AI should enhance your judgment—not replace it.

Curious… how many people have actually looked inside their target date fund instead of just picking the year closest to retirement?

I just went in to take my Vanguard 529s out of Target-Date funds and reallocate to the underlying funds, however before submitting, I double checked the fees. The underlying funds expense ratio was actually right on par with the Target-Date expense ratio. Outside of a 529, the expense ratios were between 0.01 and 0.03, but inside they are 0.1 more. Am I missing something?

I just listened to the episode.

Oh Cody, Uncle Frank is going to be so mad at you for plugging a bucket strategy. 😄

I was somewhat challenged at first. I liked the "simplicity" of vanguard target date fund but I didn't really like the glide path. I just want a 90/10 split. So after processing and researching I just made a decision which will actually make it simpler for me and I'll just rebalance on my birthday. Thanks for the challenge!

Thanks for the great episode Brad and Cody! One question for Cody: if I decide to build a bond ladder to fund the next 7 years of spending, what happens two or three years in? Is it a rolling 7-year timeframe, so that each year as the one-year bond (or bond fund) matures, I'm investing in a new 7-year fund to keep the time horizon at 7 years? If not, it seems like when I reach year 7, I won't have any more cash coming in. But you framed this as a strategy to avoid having to sell equities in a market downturn, so I'm trying to figure out how I could keep this going without selling some equities to fund the bond ladder going forward. Thanks so much for helping me understand this concept!

Another great episode with Cody. Thanks for pointing out not all Target date funds are the same, they have different strategies between companies. That is eye opening and would be interesting to see what all the funds Cody compared.

Plus since they rebalance on their own capital gains can be created within the fund and if you hold it in a taxable brokerage account you pay those capital gains even if you don't sell anything yourself. We experienced this with a family member having active managed funds that created capital gains at the end of the year and didn't see those capital gains until December so no tax planning could occur a small amount invested wouldn't be a problem but if most of your taxable brokerage account is over time more would be.

Lastly learning about the Target maturity bond ETFs I hadn't heard of these which is combine the defined endpoint of an individual bond with the diversification of an ETF. They hold bonds maturing in a specific year, pay monthly income, and liquidate at target maturity to return your principal. Doing a search this is interesting especially if you want a bucket strategy or a short term plan. I could see this for retirement accounts since it would be income taxed in a taxable brokerage account so not tax efficient. Interesting thought.

Thanks Cody and Brad!

Another great episode, I love the ChooseFI deep dive episodes. Like Brad I also struggled with the idea that the fixed-allocation fund kicks out capital gains at year end due to the rebalancing that happens throughout the year, and there's nothing you can do about it. But if you were to buy the constituent funds independently and rebalance them yourself, you'd end up realizing a similar amount of capital gains. The only way to avoid it would be to not rebalance, and let the portfolio drift off its target allocation - to me, that's not worth it. The fact that I don't have to think about rebalancing (and am not tempted to time the market when doing so) is the biggest advantage of the fixed-allocation fund for me, and I figure the capital gain is what I'd pay anyway.

I love that Cody talked about using CBT and motivational interviewing to manage the emotional side of finances. As a mental health counselor, I agree these techniques can be very helpful.

This was an interesting and helpful episode. Thank you Cody and Brad!