Investors hold $4.8 trillion in these retirement funds—how to choose one for yourself

Target-date funds reached $4.8 trillion in assets in 2025 and have grown at an 11.9% annualized rate over the past five years. Average expense ratios declined to 0.27% in 2025 (from 0.29% in 2024 and 0.55% in 2015), while Morningstar notes glide paths have shifted more aggressively (many funds hold >90% equities at long horizons, though some conservative paths start ~50% equities). Fee differences remain economically significant over decades — e.g., a hypothetical 40-year saver would see ~$1.37M vs ~$1.25M with 0.35% vs 0.68% expenses (fees paid ~$140k vs ~$260k).

Analysis

The structural expansion of target‑date assets is a multi-year demand signal for firms that sell retirement analytics, glide‑path consulting and fund‑of‑fund indexing — a category where Morningstar has both commercial relationships with plan sponsors and product offerings that can be cross‑sellable. Expect the revenue mix shift to favor recurring data/subscription and licensing deals over one‑off advisory work; that favors valuation multiple expansion on a 12–24 month horizon if churn remains low and plan sponsor budgets aren’t cut.

Fee compression and the industry’s drift toward more aggressive glide paths create two offsetting second‑order effects: pressure on active managers’ margins (raising consolidation and distribution rationales) and concentration risk in equity exposure for near‑retirees. A meaningful equity drawdown would transmit to recordkeepers through outflows, reputational risk for large target‑date brands, and increased demand for customizable “bucketized” or protect‑first products — a potential jump‑ball opportunity for fintech/advisor platforms over 1–3 years.

The consensus overlooks behavioural sequencing risk. If retirees experience larger realized losses near retirement, plan sponsors and regulators could push toward safer, standardized glide paths or mandatory disclosure/benchmarks — an outcome that would be positive for firms providing governance and benchmarking tools (institutional data vendors) but negative for boutique active managers whose core pitch is outperformance. That bifurcation argues for asymmetric positioning: long the vendor of decision‑support and benchmarking tools while selectively shorting consumer lead‑gen exposures that don’t materially capture institutional wallet share.

Key Decisions for Investors

• Long MORN (equity or 12‑18 month calls): buy MORN stock or 12‑18 month calls (delta ~30%) targeting a 25–40% upside if institutional data/licensing renewals accelerate; downside is a 20–30% drawdown if budgets are cut — risk/reward ~2.5:1 for a disciplined premium allocation.
• Pair trade — long MORN / short NRDS (equal dollar, 6–12 months): capture widening dispersion between institutional data beneficiaries (MORN) and consumer lead‑gen monetizers (NRDS) if TDF adoption increases plan‑side spend; set stop at 12% adverse move on either leg to keep the pair relatively hedged.
• Event‑trigger option: buy MORN Jan 2027 1.5x OTM calls (or nearest LEAP) ahead of fiscal‑year vendor RFP season (most plan renewals roll Q3–Q4); asymmetric payoff if Morningstar wins incremental enterprise contracts, limited premium risk if RFP resets are delayed.
• Tactical hedge: buy 3–6 month NRDS puts or avoid NRDS outright until clearer linkage between TDF flows and consumer acquisition economics appears — downside if consumer advertising reprices or CAC rises, upside limited absent clear monetization of retirement flows.