(Bloomberg Business) — To prepare for retirement, workers need to do two things: save enough and choose the right investments. The first is essential, and many Americans aren’t saving enough to retire on. But for those who are saving, there’s good news: Their retirement money is ending up in a better mix of investments.
New data on the 3.6 million participants in Vanguard Group retirement plans as of the end of 2014 (there are now 3.9 million) show workers are taking fewer extreme risks with their portfolios.
Employer stock, for example. If you invest in your employer and the company runs into trouble, you risk losing your job and your retirement savings at the same time. Data on Vanguard 401(k) plans show workers are ending up in this risky situation far less often these days.
Even a diverse basket of stocks may be too risky if it’s your entire portfolio. During recessions and market downturns, stocks are much more volatile than bonds. So, for all but the very youngest workers, most experts recommend a mix of bonds and stocks, with fewer stocks as you get closer toretirement. Some workers still bet their entire retirement on the stock market, but that’s become a lot less common.