Target-date funds are probably the reason millennials hold so many stocks.

Investors in general favor equities and are allocated heavily to stocks, but millennials in particular are overweight equities, according to the December ICI Research Perspective released jointly by the Employee Benefit Research Institute and the Investment Company Institute.

Two-thirds of participants’ assets were invested in equities as of the end of 2013, according to the report, including equity funds, the equity portion of balanced funds and company stock. While equity exposure has increased for all age groups since 2007, almost two-thirds of investors in their 20s and over 62% of those in their 30s had 80% or more of their assets allocated to equities.

However, studies have shown consistently that millennials tend to invest conservatively. While not the most conservative generation, they have a similar risk profile to that of a boomer. Part of younger investors’ seemingly incongruous penchant for equities could be explained by plans’ use of target-date funds, which would be allocated more heavily toward equities for younger investors.

The report found 15% of all participants’ assets were invested in target-date funds at the end of 2013, and 41% of participants had some of their assets in a TDF. Among 20-somethings, 52% have target-date funds and 35% of assets owned by that age group are in TDFs.

When it comes to target-date funds, for investors in their 20s, it’s all or nothing. EBRI and ICI found that investors in that age group, about 48% had zero percent of their account balance in a TDF, while over 42% had between 90% and 100% of their balance in one.

Equity allocations increased outside of TDFs, too, though. By the end of 2013, 44% of participants’ account balances were in equity funds, up from 39% in the two years prior. “Much of the movement in the largest component, equity funds, tends to reflect overall equity market prices, which generally rose from 2003 through 2007, dropped in 2008, rose from 2009 through 2010, moderated in 2011, and rose in 2012 and 2013,” according to the report.

Research Affiliates’ Rob Arnott and Lillian Wu argued in an October newsletter that the traditional wisdom of investing heavily in stocks while young is misplaced. Due to factors like job changes and unemployment, young workers are more likely to withdraw assets from their 401(k)s, exposing themselves to penalties from the IRS and smaller account balances.

Arnott and Wu argued that young investors should have a “starter portfolio” that is equally invested in stocks, bonds and “diversifying inflation hedges.”

Account balances were up over 13% since 2012, but the EBRI/ICI report authors tried to temper optimism by pointing out that may not be typical of the average participant’s experience. “To understand changes in 401(k) participants’ average account balances, it is important to analyze a sample of consistent participants,” the authors wrote, adding that such an analysis is expected to be published next year.

The report is based on EBRI and ICI’s database of 26.4 million plan participants in 72,676 employer-sponsored 401(k) plans, who hold almost $1.2 trillion in assets. According to EBRI and ICI, that covers “about half of the universe of 401(k) plan participants, nearly 15% of plans, and 46% of 401(k) plan assets.”

— Check out Gen Y Wants It All, and They’re Willing to Pay for It on ThinkAdvisor.