Close to one in four 401(k) investors have their assets allocated solely in target-date funds — a six-fold increase over the past five years, according to new Vanguard research. Plus, adoption among new investors is quite strong, with 64% of employees entering their plan for the first time investing in a single target-date fund (TDF).
The recent Vanguard report, “Target-Date Fund Adoption in 2011,” found that 82% of defined contribution (DC) plans at Vanguard offered a TDF last year. Moreover, among all DC plans at Vanguard, 47% of investors had a position in TDFs, with 24% of investors holding assets concentrated in a single target-date fund.
The funds accounted for 27% of total plan contributions. A major factor influencing the rise of TDFs is the automatic enrollment of investors and the plan sponsors’ decision to choose target-date funds as the default investment option. Still, about half of investors make a decision to allocate their savings into TDFs voluntarily.
“We view this trend as extremely positive because TDFs are providing an increasing number of participants who are neither engaged nor sophisticated investors with balanced, well-diversified portfolios, as well as reducing the risks associated with extreme equity allocations,” said Jean Young, the study’s author and an analyst in Vanguard’s Center for Retirement Research, in a press release.