In early 2025, target date fund (TDF) investors experienced a setback as U.S. stock markets declined sharply, with a 12% year-to-date loss driven by tariffs and fears of a market correction. For years, diversification beyond U.S. equities hurt performance, but that trend reversed as global factors began to weigh on domestic markets. 

The SMART TDF Index, which models ideal TDF allocations with better risk management, has outperformed the industry standard, revealing that most TDFs are overexposed to risky U.S. assets. April’s turbulence, sparked by the April 2 “Liberation Day” tariffs and further losses in the S&P 500, has intensified concerns about sequence-of-return risk, especially for those nearing retirement. 

Despite historical lessons and available low-risk alternatives like the SMART Index and TSP, most TDFs remain unprepared for prolonged downturns. 

Finsum: With fear dominating investor sentiment, now may be the time to rethink how TDFs protect retirement savers.