Vanguard Target-Date Fund Investors Bought (and Sold) Themselves an Extra $23 Billion

The market has thrown a lot at investors in recent years. There was the dual stocks-and-bonds downturn in 2022, a tech-led equity resurgence in 2023 and 2024, and then this year’s tariff tantrum. But you wouldn’t necessarily know it looking at the returns Vanguard target-date fund investors have earned.

Those funds (and the collective investment trusts that mirror them) notched a 7.9% per year aggregate average total return over the three years ended April 30, 2025. Even more impressive, the average dollar invested in these strategies gained 8.0% annually, meaning investors slightly outearned their funds. That’s the opposite of what we typically see, where dollar-weighted returns lag total returns because of inopportunely timed purchases and sales.

(See the “Appendix” at the bottom of this article for a summary of which target-date strategies were included in the study.)

While those returns didn’t beat US stocks over that period, it’s important to keep in mind that the aggregate average target-date returns span strategies that hold a broad mix of stocks and bonds, as dictated by the allocation that corresponds to a given target year.

With that in mind, here is what the picture looked like when I broke the target-date strategies down by target-date year (that is, 2020, 2025, 2030, and so on). In general, investors’ dollar-weighted returns approximated, if not exceeded, the funds’ time-weighted returns, irrespective of target year. The exceptions were the nearer-dated target-date strategies, where investors were withdrawing money as they entered retirement amid a gradually rising market.

All told, I estimate that investors in Vanguard’s target-date funds and CITs earned around $23 billion more than they would have had they not bought or sold the funds over the three years ended April 30, 2025. That figure represents the difference (around $284 billion) in the funds’ aggregate beginning and ending net assets not explained by flows versus the difference (about $261 billion) in starting and ending net assets assuming the funds were simply bought on April 30, 2022, and held for the next three years.

Steady Inflows and Automation for the Win

Why did investors in these funds and CITs fare so well even amid a topsy-turvy market? They kept at it, adding money to these strategies in 26 of the 36 months. Arithmetically, that has meant the funds came to have more assets in the good years (2023 and 2024) than they had in a difficult 2022, buoying dollar-weighted returns. But if investors hadn’t kept shoveling money into the funds, the math wouldn’t have worked in their favor.

It also appears the strategies’ automated, no-frills format benefited investors. This is evident when you compare the total and dollar-weighted returns of the target-date strategies’ underlying holdings against those of comparable vehicles. For starters, here are the vehicles the target-date funds and CITs held during the three years ended April 30, 2025.

And here’s how those holdings’ total and dollar-weighted returns compared with those of other Vanguard funds of the same type over the three years ended April 30, 2025. (The “Other Vanguard Funds” excludes exchange-traded funds to allow for like-for-like comparison, as Vanguard’s target-date funds hold only open-end funds.)

In general, the target-date funds’ holdings have earned higher time-weighted returns, and investors in those target-date funds have captured a larger share of them than have other Vanguard funds of the same type. This seems to indicate that the format itself—that is, contributing regularly into an all-in-one strategy that mechanizes allocation and rebalancing—paid off for investors.

A Picture of Consistency

Though recent years have seen their share of ups and downs, investors in Vanguard’s target-date strategies have largely been the picture of consistency, steadily pumping new money into the funds and largely staying the course. This has translated to solid total and dollar-weighted returns, as investors appear to have succeeded in correctly timing their purchases and sales. That has put billions of extra dollars in their pockets.

Appendix

I defined “Vanguard target-date fund investors” as those who invested in the firm’s target-date open-end mutual funds and CITs over the three years ended April 30, 2025. I chose that period because it followed a consolidation that Vanguard made to its target-date lineup in early 2022. The data includes all share classes of all strategies, but excludes Vanguard Target Retirement Income (and its CIT versions), which had absorbed another fund in a merger in July 2022, as well as the 2070 vintage, which didn’t have flows and returns for the full 36-month period.

Switched On

Here are other things I’m writing, reading, listening to, or watching:

• Morningstar’s favorite college-savings plans
• Christine Benz and I chatted with Jason Zweig about his update of Ben Graham’s “The Intelligent Investor” as well as tariffs, private markets, and more
• From “Drawdowns and Recoveries: Base Rates for Bottoms and Bounces” by Michael Mauboussin and Dan Callahan: “The median drawdown for the 6,500 stocks in our sample from 1985 to 2024 was 85% and took 2.5 years from peak to trough. More than one-half of all stocks never recover to their prior highs.”
• “A Loss is Just a Gain That Hasn’t Happened Yet” by Owen Lamont (“Coiled alpha,” lol)
• Neal Brennan interviews actor William H. Macy on the Blocks podcast; the Rewatchables takes on Spielberg’s “Close Encounters of the Third Kind”
• Tunde Adebimpe “God Knows”; Stereolab “Aerial Troubles”

Don’t Be a Stranger

I love hearing from you. Have some feedback? An angle for an article? Email me at jeffrey.ptak@morningstar.com. If you’re so inclined, you can also follow me on Twitter/X at @syouth1, and I do some odds-and-ends writing on a Substack called Basis Pointing.