Good question. It prompted me to take a look. During the crash, I had a big chunk of my portfolio in target funds. (Not all, because I didn't want to pay the capital gains taxes that would have been due had I exchanged my Total Stock Market shares.) I froze like a deer in headlights during the panic and did not rebalance until July, while the target funds presumably were rebalancing all the time. The target funds should have done better. Let's see.
I compared Vanguard's Target 2015 fund to the performance of a portfolio comprising its underlying funds. Well, almost. The target funds use institutional shares of the Total Bond Market fund, but let's assume they are similar, and anyway, if you are going to roll your own, you couldn't buy the institutional shares anyway. It seems that the target fund did benefit from rebalancing, losing only 2.77% year over year instead of the not-rebalanced portfolio's 5.35% loss.
On the other hand, you might have done better going your own way if you were very lucky about rebalancing.
Here are the numbers
| ||Allocation||Sep 23, 2008||Sep 18, 2009||Return|
The portfolio in the bottom row is composed of the same percentages of VTXVX's underlying funds, as shown in the second column.
This presumes that VTXVX did not change their AA very much during the year.