The market’s rough start to the year seems like a distant memory now.
After flirting with a correction in the first quarter amid tariff-induced volatility, Wall Street recovered and by the end of July, all three major indices had set record highs. With the S&P 500 up 28% from its year-to-date low on April 8 and equity funds continuing to attract significant investment, 2025 is on pace to be yet another year of $1 trillion-plus inflows.
But for panicked investors who sidelined their cash or leaned heavily into fixed income and cash alternatives earlier this year, the opportunity costs of remaining too conservative could be mounting. For retirement savers in particular, determining an appropriate risk management strategy can prove invaluable over time.
Money spoke with Stephanie Nanney, partner and director of qualified plans at wealth management firm Private Vista, to better understand what that means for retirement planning amid the current bull market and into the future.
Target-date funds: the most popular retirement option
Because of their simplicity, automatic rebalancing and inherent diversification, target-date funds have become the most popular 401(k) investment vehicle. In many cases, target-date funds are also the default option in employer-sponsored plans, making them the ideal set-it-and-forget-it retirement investment.
Also called lifecycle funds, they aim to simplify retirement planning by automatically adjusting allocations as a person’s intended retirement date approaches. At predetermined intervals, a target-date fund’s allocations become more conservative. Positions shift from growth-focused assets like stocks to more stable assets like bonds the closer you get to retiring (and needing that money).
“The target-dates certainly have their place for [offering] the ability to — first and most importantly — be invested,” says Nanney. “So step one is getting yourself invested. Step two is determining what allocation is right for you.”
But in almost all cases, target-date funds have at least some exposure to fixed income. That means even for younger investors with longer investment horizons, some of the upside potential of equities is sacrificed in favor of safety.
“The glide path towards the target date is making you more conservative as you age,” says Nanney, who is also a certified financial planner. Investors should ask themselves, “If I’m not retiring for 15 years, why am I thinking about making it more conservative?”
Because target-date funds automatically rebalance over time, those allocations could become misaligned with an investor’s individual risk tolerance.
Nanney uses workers in their 40s as an example. Because these people are at the midpoints of their careers, target-date funds’ automatic rebalancing can begin tapering their stock exposure down to, say, 85% to 90%. But people in that demographic may, in reality, be comfortable with being 100% allocated to equities.
An easy solution to avoiding these misalignments is knowing your options. Nanney says she always educates her plan participants so they understand that even if they’re planning to retire in 2045, for example, they can invest in the 2055 target-date fund so the allocations are more aggressive over a longer period.
When to make your 401(k) more conservative
Investors must determine when it’s appropriate to introduce a significant allocation to fixed income, according to Nanney. That could be based on age, risk profile or accumulation.
But she stresses that, despite it being an individual question, this approach requires getting started early.
If, over the course of decades, your nest egg isn’t developed with a focus on growth, it could delay the transition into fixed income — and expose your portfolio to risk at a time when it should be getting more conservative.
For many, that will require drastically changing their financial habits. Data suggests that most younger Americans aren’t saving for retirement. Findings from an Arta Finance survey suggest that 54% of Gen Z respondents began investing by age 21 compared to 31% of millennials and 27% of Gen X. However, just 30% of Gen Z respondents — those born between 1997 and 2012 — say they’re actively saving for retirement compared to 51% of millennials (1981 to 1996) and 49% of Gen X (1965 to 1980).
Starting to save for retirement at a younger age and having exposure to equities during the accumulation phase is what enables investors to transition into enjoying what Nanney calls the cash cushion later in life. While the amount needed for that cash cushion is different for everyone, she says, for some it can be as much as three years’ worth of living expenses.
“Fill that bucket up with dividends, interest and potentially capital gains distributions, depending on the appropriate level of aggressiveness,” says Nanney. “That diversified portfolio of fixed income and some growth is a place where we want to see our clients be able to kick off their RMDs and be able to live off of them.”
What does access to private equity mean for 401(k) savers?
In July, the Trump administration announced an effort to give employers and 401(k) plan administrators guidance on how to incorporate private investments within retirement accounts.
But the illiquidity and elevated risk that accompanies private markets can run opposite to the historically safe, slow and steady growth offered by retirement plans. Nanney says private investments in retirement accounts are too speculative for the everyday investor.
“What you are trying to accomplish with a 401(k) is getting people to invest in a diversified portfolio that will grow over time,” she explains. “It is very hard for average investors to not follow trends and get themselves in trouble.”
This year has been a poster child for diversification, according to Nanney. But diversification doesn’t have to involve speculative, volatile, illiquid and higher-risk assets like private equity, private debt or reinsurance.
“Speculative stuff, in my opinion, should occur when you have a certain level of wealth that allows you to invest outside of your 401(k),” she says.
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