Here's the short answer. When you hold separate funds instead of one all-in-one fund, you get to choose what you sell when you need cash. And in retirement, when you're living off withdrawals, that flexibility may be an important consideration.
Let me explain.
Let's say you own a target date fund. It's a fine product. It's diversified, it rebalances itself, and for many people it can be a simple and effective way to build a retirement portfolio. I'm not knocking it.
But a target date fund is a blended portfolio. When you sell a piece of it, you're selling a little slice of everything inside it at once. The large-cap, the small-cap, the bonds, all of it together. You don't get to pick.
Now picture holding the pieces separately instead. A large-cap fund, a small-cap fund, some bond funds. Same general idea, but now when you need money, you have more discretion over which fund you sell from. That's one of the differences some investors find valuable, particularly when they're taking withdrawals in retirement.
Why that matters in retirement
These funds don't all move together. Some years large-cap does great and small-cap lags. Some years stocks are down and bonds hold up. They take turns.1
In retirement you're potentially not adding money anymore, you're taking it out. Many investors prefer to avoid selling assets that have recently declined in value when other withdrawal options are available.² Once you sell those shares, they're gone, and they're not around if that part of the market comes back.
So, let's say small-cap had a bad year and it's down, but your large-cap fund held up fine. If you hold them separately, you take your withdrawal from large-cap and leave the small-cap fund alone. You don't have to sell the thing that's down. You can leave that portion of the portfolio untouched while determining whether it still aligns with your overall strategy.
With one target date fund, the investor, generally, does not control which underlying asset classes are being sold when shares are redeemed.3 Every time you pull money out, you're selling a little of the small cap too, down year or not. It's baked in.
The trade-off
Now, holding separate funds is a little more work. More pieces to watch, and you're the one deciding what to sell. A target date fund takes all that off your plate, and for some people that simplicity is worth more than the flexibility. Everyone's different.
So I'm not saying one is right and one is wrong for everybody. I'm saying that once you're taking withdrawals, being able to choose what you sell may provide additional flexibility for some retirees, some of that flexibility is reduced when portfolio decisions are delegated to a single all-in-one fund. One fund is simple, and simple is good. But separate funds do give you more control over where withdrawals come from. For some retirees, that added flexibility may be worth the extra complexity.
It's also worth noting that target date funds offer benefits of their own, including automatic rebalancing, broad diversification, and simplified portfolio management.4 For some investors, those advantages may outweigh the additional flexibility of holding separate funds.
Sources:
- J.P. Morgan Asset Management, “Asset Class Returns,” Guide to the Markets, 2026. Available at https://am.jpmorgan.com/us/en/asset-management/institutional/insights/market-insights/guide-to-the-markets/guide-to-the-markets-slides-us/investing-principles/gtm-asstclssret/
- Michael Kitces, “Managing Sequence Risk: Bucket Strategies Vs Total Return,” Kitces.com. Available at https://www.kitces.com/blog/managing-sequence-of-return-risk-with-bucket-strategies-vs-a-total-return-rebalancing-approach/
- This reflects the standard mechanics of pooled fund redemptions, in which shares of a mutual fund or ETF are redeemed proportionally across the fund’s underlying holdings. See the specific fund’s prospectus for details on redemption mechanics.
- Vanguard, “How Vanguard Designs Its TDFs to Help a Range of Investors,” Vanguard Institutional. Available at https://workplace.vanguard.com/insights-and-research/report/vanguards-approach-to-target-date-funds.html.html
The information has been obtained from sources considered to be reliable, but Equitable Advisors does not guarantee that the foregoing material is accurate or complete nor will this information necessarily be updated or supplemented at any time.
AGE- 9018873.1(7/26)(Exp. 7/30)
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