Robo-Advisor vs Target Date Fund – What’s the Difference?

Robo adviser vs target date fund - Which is best for you?

Which is Better – a Robo-Advisor or a Target Date Fund?

By staff columnist, Alexandra Deluise

In the wake of the amazing technological improvements impacting investing opportunities, you might find yourself torn between two investment platforms. If you find yourself wondering “what’s the difference between a robo-advisor and a target date fund,” you’ve come to the right place.

In the robo-advisor vs target date fund discussion, there are a few things you should know first.

Robo-Advisor vs Target Date Fund: What Are Their Features?

Education is the key to making any investment decision. By understanding what each investment option offers, you can make the best possible decision for your unique financial situation.

Robo-Advisors: Customizable, Flexible Investment Options

Robo-advisors are computer or algorithm-based investment platforms that are designed to replace a traditional financial advisor. There are so many robo-advisors out there that you’re bound to find one that fits your needs, whether you’re already a retiree or are looking for low-fee investing options.


One massive boon to robo-advisors is that they are extremely customizable. Although some robo-advisors are really good at specific things, like making investments for women or helping new investors get started, others are able to be tweaked so that they handle multiple investing goals (retirement and a child’s college fund, for example).

In fact, M1 Finance combines DIY investing with robo-advisor management.

Target Date Funds: Set It and Forget It

Target date funds are typically long-term investment portfolios with a specific end date in mind—hence the “target date.” These portfolios adjust the portfolio’s risk level with your target date in mind.

Your investments in a target date fund must be able to be cashed out by your target date and should be geared toward getting your close to your investment goals by that date. For that reason, you may notice your investments shifting over the years.

As your target date approaches, the investments will be weighted toward conservative fixed investments and away from riskier stock market funds. For example, you may have higher risk investments in the early years, particularly if your target date is 40 years in the future. As you get closer to the date, your investments might shift to the more conservative side so that you don’t risk any high-stakes losses right near your retirement!

With That in Mind, What’s the Difference Between a Robo-Advisor and a Target Date Fund?

There are a few similarities between robo-advisors and target date funds that make each alternative a good investment choice for certain groups of people. However, there are some stark differences that are worth noting before you dive into one or the other.

Robo-Advisors vs Target Date Funds: Customizability

Target date funds do adjust to reflect your progress toward your goals—sort of. In terms of accounting for things like life expectancy and very specific date-based goals, robo-advisors do a bit better. In the robo-advisor vs target date fund debate, robo-advisors are a clear winner if you want flexibility.

Because target date funds are designed with specific years as end goals, they’re a bit less you-focused than a robo-advisor can be. Target date funds have blanket investing options designed to meet the average investor’s goals by a specific end date. And within the broad target date fund universe, the investment fees and asset allocation assumptions vary.

For example, one target date fund might have you at 50% stocks and 50% bonds at your target date. While another might have you at 60% stocks and 40% at your retirement date. This matters as stocks are more volatile than bond investments and their values bounce around more. So, if you’re looking to tap your investment money at age 65, you want to make certain that it’ll be available at that time.

Most robo-advisors allow you to shift your asset allocation at will. So, if the risk level of your robo-advisor investments isn’t working for you anymore, you can just change it.

Both robo-advisors and target date funds are able to provide diverse investment portfolios. But, robo-advisors vary on their access to diverse investments. All robo-advisors offer basic stock and bond funds. But some robo-advisors veer into real estate, commodities, value investing stock funds. While other robo-advisors give you the chance to invest in a wide range of bond varieties. Also, robo-advisors take your risk tolerance into consideration and can be adjusted as you go.

Learn more; Robo-Advisor Comparison Chart

The Difference Between a Robo-Advisor and a Target Date Fund: Fees

In this case, robo-advisors and target date funds have one very important thing in common: they’re both usually cheaper than a traditional financial advisor.

The reason for these low fees for both robo-advisors and target date funds is that they both run almost autonomously. Robo-advisors rely on algorithms to calculate and rebalance your portfolios, while target date funds have pre-scheduled rebalancing options to make sure your investments become less aggressive (thus more reliable, in theory!) over time.

Best; Free Robo-Advisors

When you pay a traditional financial advisor, you are paying for all sorts of things: the advisor’s salary as well as the brick-and-mortar building and all its utilities, for instance. Self-run investment platforms don’t have any of these fees, so they can afford to be cheaper.

Historically-Proven Success: Robo-Advisors vs. Target Date Funds

This is one category where target date funds jump ahead. Simply put, target date funds have been around longer than robo-advisors. For that reason, target date funds have some historical weight behind them.

Although nothing is ever guaranteed when you make an investment, it is comforting to see that target date funds have been working for many people over the years. Robo-advisors, on the other hand, are relatively new. Although these robo-advisors have also had success and are doing great at this moment, the market is always unpredictable.

Still, just because something is new doesn’t mean you should stay away from it. Robo-advisors are consistently proving themselves as serious contenders in the investment market. Actually, the Betterment robo-advisor is coming on it’s tenth birthday this year.

The Takeaway: Should I Choose a Robo-Advisor or a Target Date Fund?

Let’s recap: robo-advisors and target date funds each offer benefits that can help you reach your long-term goals. Which one you choose depends on what you value most in an investment platform.

Are you looking for something with a longer history of success, one-time setup, and an investment option that needs no maintenance? You might try a target date fund.

Do you value the ability to “set it and forget it,” while still having the option to adjust your investments at any time? A robo-advisor might be your best choice.

Would you like to stay away from the high fees that most traditional financial advisors charge? Either a robo-advisor or a target date fund would be a good option for you!

This doesn’t necessarily need to be a question of choosing a robo-advisor vs. a target date fund. A good investment portfolio is generally one that is well-rounded and diverse, so investors may choose to complement their retirement savings with investments in both types of funds.

As with all choice there are  disadvantages of robo-advisors and target funds, as well as advantages of each.

However, if you need to choose just one you should choose the option that best represents your values and needs, whether those needs are a low-maintenance investment option, increased customizability, or ease of access.

Staff columnist Alexandra DeLuise combines her banking experience with real-world financial advice to provide simple money tips to everyday people.

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