Target funds are passively managed, which means nobody is sitting there trying to buy the bottoms and sell the tops, which is what we call actively managed funds. Not having anyone to constantly babysit them is what makes passively managed funds less expensive than actively managed in terms of expense ratios.
Target funds tend to consist of other passively managed index funds that provide broad market coverage and whose objectives are none other than to mirror the performance of a wide range of securities in a particular asset class.
If your friend’s 401k suffered a 50% loss in 2008 and did not recover on the way back up, that means either your friend panic-sold, your friend was in a (very poorly) actively managed fund, or (most likely) your friend is full of shit.
Regardless, I would recommend not taking financial advice from your friend.
To answer your question, as long as you hold passively managed index funds, you do not have to worry about someone “selling your stocks if the economy tanks.”
In a 401k one generally does not have a choice in management.
You may have a choice in only a few funds…. So yeah if your holdings were sold then yeah that sucks and hurts. Hence I agree with the top comment IF YOU CAN index funds…
Usually a 401k will have two options: managed and self-directed. With managed, usually you pay some amount and the custodian selects investments. With self-directed, you pick the funds you invest in.
Usually there are passively managed funds in a 401k. Typically there’s a least an S&P 500 fund, a bond index fund, and often an international index fund. That’s all you need, and nobody is going to sell shares in those funds without your say-so. My 401k allows me to select a target ratio between each fund, so I can have whatever split I want, and I can choose to have it auto-rebalance (I think it costs something) or just contribute new money according to that ratio (free, that’s what I do).
Every 401k is a little different, but 401k custodians have certain fiduciary responsibilities, so they have to provide a reasonable selection of funds. Even actively managed funds can be fairly passive, so read up on the prospectus and find a lowish cost fund that targets an index, even if it’s actively managed.