Retiring in the 2030s? These 3 ETFs Beat a Target-Date Fund

Target-date funds have become the default retirement investment for millions of Americans, and for good reason: you pick a year, and the fund handles the rest. Total assets in target-date strategies reached $4.8 trillion in 2025, growing at roughly 12% annually over the past decade, according to Morningstar. If you have been meaning to check up on your retirement readiness, this might be a good time to look at what that convenience is actually costing you. 

The industry average expense ratio for target-date mutual funds fell to 0.27% in 2025, according to Morningstar, low by historical standards, but still several times what a comparable portfolio of three index ETFs might charge. Here is what each fund does, what it costs, and how the savings compare.

Vanguard S&P 500 ETF for U.S. equity growth

The Vanguard S&P 500 ETF (NYSEMKT:VOO) tracks the 500 largest U.S. companies and carries an expense ratio of just 0.03%, according to Vanguard. In a three-fund portfolio, this ETF typically fills the domestic equity role, the engine that has historically driven most of the long-term growth.

For someone retiring in the 2030s, a meaningful allocation to U.S. stocks could still make sense because you may need your money to last 20 to 30 years past retirement. The S&P 500 has averaged near 10% annual returns historically since 1959, though past performance never guarantees future results.

Vanguard Total International Stock ETF for global diversification

The Vanguard Total International Stock ETF (NYSEMKT:VXUS) holds roughly 8,600 stocks from developed and emerging markets outside the U.S. at an expense ratio of 0.05%, according to Vanguard. It serves as the international diversifier, reducing your reliance on the U.S. market alone.

When American stocks have lagged, as they did for much of the 2000s, international holdings have historically helped cushion the blow. Vanguard suggests holding at least 30% of your stock allocation in international equities for meaningful diversification.

Vanguard Total Bond Market ETF for ballast near retirement

The Vanguard Total Bond Market ETF (NYSEMKT:BND) covers more than 11,000 investment-grade bonds, including Treasuries, corporates, and mortgage-backed securities, at an expense ratio of 0.03%, according to Vanguard.

For someone approaching retirement, bonds tend to dampen the swings of a stock-heavy portfolio. If stocks drop sharply, your bond allocation may hold steadier, giving you time to recover without selling at a loss. The fund carries an average duration near six years, according to Vanguard, meaning modest sensitivity to interest rate changes.

Why target-date funds cost more than you might expect

A target-date fund bundles stocks and bonds into one product, then gradually shifts toward bonds as your retirement year approaches. That automation has a price. Vanguard's own Target Retirement 2035 Fund charges 0.08%, according to its fact sheet, which is among the cheapest available. The broader industry average sits at 0.41%, according to Vanguard, citing Morningstar data as of the end of 2025. A blended VOO/VXUS/BND portfolio, by contrast, might run roughly 0.04%.

How the fee gap adds up on a $500,000 portfolio

On $500,000, the three-ETF approach might cost about $200 a year in fees, while the average target-date fund would charge roughly $1,350. Over a decade, that gap could exceed $11,000. Here is how the individual costs break down:

• VOO at 0.03% — about $150 a year on $500,000.
• VXUS at 0.05% — about $250 a year on $500,000.
• BND at 0.03% — about $150 a year on $500,000.
• Blended ratio of roughly 0.04% versus the 0.27% industry average.

The rebalancing trade-off (and why it takes less time than you think)

The main trade-off with this approach is that you are responsible for setting and maintaining your own allocation, something a target-date fund does automatically. In practice, that may mean checking your portfolio once or twice a year and shifting a few percentage points between funds to stay on target. Many brokerages offer free rebalancing tools or let you set alerts, so the actual time commitment could be as little as 30 minutes a year.

Bottom line

Target-date funds remain a solid choice for anyone who values simplicity above all else, and there is nothing wrong with that approach. But if you are comfortable making a retirement plan with a small amount of hands-on oversight, a three-ETF portfolio of VOO, VXUS, and BND could offer similar diversification at a fraction of the cost.

The fee gap might not seem dramatic in any single year, but over a decade of compounding, it could meaningfully affect how well you've prepared for retirement. Whether you stick with the autopilot option or take the wheel yourself, knowing what you are paying and what you are getting is what matters most.