Episode 374: The Underperformance of Target Date Funds
The Rational Reminder Podcast · 2025-09-11 · 56 min
Episode notes
In this episode, we're joined by David C. Brown, Associate Professor of Finance at the University of Arizona, for a deep dive into the mechanics, performance, and pitfalls of target date funds (TDFs) - the most common investment vehicle in U.S. retirement accounts. David has spent years researching glide paths, benchmarking methods, and industry practices to uncover whether these "set it and forget it" funds actually serve investors well. We unpack why benchmarking TDFs is so difficult, what really drives their underperformance, and how tactical deviations from strategic glide paths often harm investors. David explains how fees, active management, and fund structure combine to create persistent drag - and why dispersion across TDF providers is shockingly wide. We also discuss behavioral challenges, the influence of glide path design, and whether innovations like "indexing the indexers" could improve outcomes. David also shares insights on his side project, the Microsoft Excel Collegiate Challenge, where students compete in gamified problem-solving competitions (yes, Excel on ESPN!), and reflects on his own definition of success.