Target-Date vs Index Fund: Which Grows More in 2026?

How the target-date vs index fund comparison is worked out

On the defaults — a $10,000.00 deposit, a 7.00% gross return, a 0.50% target-date expense ratio, a 0.04% index expense ratio, and 20 years — the target-date fund ends at $35,236.45 (a 6.50% net return), the index fund ends at $38,408.55 (a 6.96% net return), and the index fund wins by $3,172.10. The whole calculation is three moves: subtract each fund’s expense ratio from the gross return for its net return, compound the deposit at the net return for the years for each ending, and subtract the target-date ending from the index ending for the fee drag.

Five things about the model are worth stating plainly. First, the net return is the gross return minus the expense ratio — 7.00% − 0.50% = 6.50% for the target-date fund and 7.00% − 0.04% = 6.96% for the index fund. Second, each ending is the deposit times (1 + net return) to the power of the years — $10,000.00 × 1.065²⁰ = $35,236.45 and $10,000.00 × 1.0696²⁰ = $38,408.55. Third, the fee drag is the index ending minus the target-date ending, worked out from the unrounded endings and rounded to cents — $38,408.55 − $35,236.45 = $3,172.10 over 20 years. Fourth, the winner is decided from the rounded gap: a positive gap means the index fund wins, a negative gap means the target-date fund wins, and a rounded gap of exactly $0.00 is a Tie. And fifth, this is a simplification — it holds the gross return equal for both funds (a target-date fund’s glide path changes its mix over time, so real returns differ), ignores taxes, contributions, and withdrawals, and expense ratios change; all listed in Accuracy & limitations.

The worked example, line by line

Setup: $10,000.00 deposit, 7.00% gross return, 0.50% target-date expense, 0.04% index expense, 20 years.

Line 1 — subtract each expense ratio from the gross return. The target-date net return is 7.00% − 0.50% = 6.50%, and the index net return is 7.00% − 0.04% = 6.96%.

Line 2 — compound the deposit at each net return. The target-date ending is $10,000.00 × 1.065²⁰ = $35,236.45, and the index ending is $10,000.00 × 1.0696²⁰ = $38,408.55.

Line 3 — subtract for the fee drag. The gap is $38,408.55 − $35,236.45 = $3,172.10 — the index fund wins by $3,172.10.

Every branch, checked

30 years: Deposit $10,000.00, gross return 7.00%, target-date expense 0.50%, index expense 0.04%, 30 years: target-date ending $66,143.66 (net 6.50%), index ending $75,273.45 (net 6.96%), gap $9,129.79, index fund wins by $9,129.79 — ten more years more than doubles the drag: the gap is $9,129.79.

10 years: Deposit $10,000.00, gross return 7.00%, target-date expense 0.50%, index expense 0.04%, 10 years: target-date ending $18,771.37 (net 6.50%), index ending $19,598.10 (net 6.96%), gap $826.72, index fund wins by $826.72 — half the time, a quarter of the drag: the gap is $826.72.

Deposit $50,000: Deposit $50,000.00, gross return 7.00%, target-date expense 0.50%, index expense 0.04%, 20 years: target-date ending $176,182.25 (net 6.50%), index ending $192,042.74 (net 6.96%), gap $15,860.48, index fund wins by $15,860.48 — five times the deposit, five times the drag: the gap is $15,860.48.

Target-date expense 0.15%: Deposit $10,000.00, gross return 7.00%, target-date expense 0.15%, index expense 0.04%, 20 years: target-date ending $37,626.21 (net 6.85%), index ending $38,408.55 (net 6.96%), gap $782.33, index fund wins by $782.33 — a cheap target-date fund nearly closes the gap: $782.33.

Index expense 0.10%: Deposit $10,000.00, gross return 7.00%, target-date expense 0.50%, index expense 0.10%, 20 years: target-date ending $35,236.45 (net 6.50%), index ending $37,979.93 (net 6.90%), gap $2,743.47, index fund wins by $2,743.47 — a pricier index fund narrows the gap to $2,743.47.

Gross return 5%: Deposit $10,000.00, gross return 5.00%, target-date expense 0.50%, index expense 0.04%, 20 years: target-date ending $24,117.14 (net 4.50%), index ending $26,331.55 (net 4.96%), gap $2,214.41, index fund wins by $2,214.41 — a lower return shrinks both endings and the gap: $2,214.41.

Target-date expense 0.75%: Deposit $10,000.00, gross return 7.00%, target-date expense 0.75%, index expense 0.04%, 20 years: target-date ending $33,618.53 (net 6.25%), index ending $38,408.55 (net 6.96%), gap $4,790.01, index fund wins by $4,790.01 — a pricey target-date fund widens the gap to $4,790.01.

The reverses, worked backwards

Deposit for a $5,000.00 gap: $15,762.44 — the exact deposit is 15762.4437. At the displayed $15,762.44 the gap is $5,000.00 (exact to the cent). $15,761.44 gives a $4,999.68 gap; $15,763.44 gives a $5,000.32 gap. The star is DOLLARS.

Target-date expense for an exact tie: 0.04% — the exact expense is 0.0400%. At 0.04% both funds end at $38,408.55 and the gap is $0.00 (exact tie). At 0.03% the target-date fund wins by $71.88; at 0.05% the index fund wins by $71.75. The star is a PERCENT.

Years for the gap to reach $5,000: 25 years — the smallest whole number of years at which the gap reaches $5,000. At 25 years the gap is $5,492.37; 24 years gives $4,940.02. This is a step reverse: the years come in whole years here, so there is no exact in-between. The star is YEARS.

Gross return for a $50,000.00 target-date ending: 8.88% — the exact gross return is 8.8798%. At the displayed 8.88% the target-date ending is $50,001.49, $1.49 over the $50,000.00 target — rounding. 8.87% gives $49,909.30. The star is a PERCENT.

Index expense for a $1,000.00 gap: 0.35% — the exact expense is 0.3509%. At the displayed 0.35% the gap is $1,005.97, $5.97 over the $1,000.00 target — rounding. 0.36% gives $938.07. The star is a PERCENT.

Deposit for a $100,000.00 index ending: $26,035.87 — the exact deposit is 26035.8712. At the displayed $26,035.87 the index ending is $100,000.00 (exact to the cent). $26,034.87 gives a $99,996.15 index ending; $26,036.87 gives a $100,003.84 index ending. The star is DOLLARS.

What the defaults assume

The defaults are a $10,000.00 deposit, a 7.00% gross return, a 0.50% target-date expense ratio, a 0.04% index expense ratio, and 20 years — target-date ending $35,236.45, index ending $38,408.55, gap $3,172.10, index fund wins by $3,172.10. With 0 years, Deposit $10,000.00, gross return 7.00%, target-date expense 0.50%, index expense 0.04%, 0 years: target-date ending $10,000.00 (net 6.50%), index ending $10,000.00 (net 6.96%), gap $0.00, Tie — no time, no drag, a Tie. With a deposit of $0, Deposit $0.00, gross return 7.00%, target-date expense 0.50%, index expense 0.04%, 20 years: target-date ending $0.00 (net 6.50%), index ending $0.00 (net 6.96%), gap $0.00, Tie. With a gross return of 0%, Deposit $10,000.00, gross return 0.00%, target-date expense 0.50%, index expense 0.04%, 20 years: target-date ending $9,046.10 (net -0.50%), index ending $9,920.30 (net -0.04%), gap $874.20, index fund wins by $874.20 — the index fund wins by $874.20 because it loses less to fees. With 40 years, Deposit $10,000.00, gross return 7.00%, target-date expense 0.50%, index expense 0.04%, 40 years: target-date ending $124,160.75 (net 6.50%), index ending $147,521.65 (net 6.96%), gap $23,360.91, index fund wins by $23,360.91. With a target-date expense of 0.04%, the same as the index fund, Deposit $10,000.00, gross return 7.00%, target-date expense 0.04%, index expense 0.04%, 20 years: target-date ending $38,408.55 (net 6.96%), index ending $38,408.55 (net 6.96%), gap $0.00, Tie — a Tie. With a deposit of $1,000,000.00, Deposit $1,000,000.00, gross return 7.00%, target-date expense 0.50%, index expense 0.04%, 20 years: target-date ending $3,523,645.06 (net 6.50%), index ending $3,840,854.76 (net 6.96%), gap $317,209.70, index fund wins by $317,209.70.

Output · formula · meaning

Who uses this

• The 401(k) saver picking a default: they learn the index fund wins by $3,172.10 over 20 years — and they check the $15,762.44 reverse to see the deposit at which the gap first reaches $5,000.
• The saver with 30 years left: they learn the gap is $9,129.79 — and they check the 25-year step to see when the gap first reaches $5,000.
• The saver in a cheap target-date fund at 0.15%: they learn the gap shrinks to $782.33 — and they check the 0.04% reverse to see the expense that ties the index fund.
• The saver weighing the return: they learn a 5% gross return shrinks the gap to $2,214.41 — and they check the 8.88% reverse to see the return that takes the target-date fund to $50,000.

Accuracy & limitations

The math is first-principles: each ending is the deposit times (1 + gross return − expense ratio) to the power of the years; the fee drag is the index ending minus the target-date ending, worked out from the unrounded endings and rounded to cents half-up; the winner is decided from the rounded gap, and a rounded gap of exactly $0.00 is a Tie. What the model cannot do is tell you what YOUR funds will return: it is a simplification only — it does NOT model the target-date fund’s glide path, which shifts the mix from stocks to bonds over time and changes the return; it does NOT model taxes, contributions, or withdrawals; it does NOT model fees that change, target-date funds that charge more than their stated expense ratio, or index funds that track imperfectly; and it assumes the same gross return every year, while real returns swing wildly. A 0.46-point expense gap costs $3,172.10 over 20 years on $10,000.00 — but the return gap between the two funds in any real 20 years can dwarf the fee gap either way. Use it to see the fee drag, then check the funds’ actual holdings and costs before you choose.

Frequently asked questions