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Portfolio > Alternative Investments > Hedge Funds

TDFs to Jump to 75%

By Janet Levaux

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Vanguard says more than half, 55%, of its 401(k) participants hold a target-date fund, and TDFs accounted for one-third of total plan contributions in 2013.

Furthermore, 40% of Vanguard participants were invested in a professionally managed account option. Of this group, over 30% are invested in a single target-date fund, and this figure is expected to jump to 48% in 2018, the fund family’s research found.

In addition, TDFs in defined contribution (DC) plans continued to grow. At the end of 2013, 86% of plans offered a TDF, with 55% of all participants having a position in the funds.

“Because of the growing use of target-date options, we anticipate that nearly six in 10 participants and 80% of new plan entrants will be invested in a professionally managed option by 2018,” said Jean Young, a senior research analyst with the Vanguard Center for Retirement Research, in the March 10 report.

Specifically, 64% of new plan participants now hold their balances in TDFs. But Vanguard estimates this figure will jump to 75% in 2018.

“Target-date funds continue to reshape investment patterns in DC plans in fundamental ways. These funds provide appropriate levels of risk as a participant ages and a remedy to the problem of extreme asset allocations,” Young explained in a statement. “For these reasons, we expect the adoption of TDFs to continue in the coming years.”

Thirty-one percent of all Vanguard participants held a single TDF in 2013, more than double the figure from five years earlier. Among participants entering the plan for the first time, two-thirds were invested in a single TDF.

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