Managed account usage has come a long way.
While target-date funds (TDFs) have worked as a reliable investment option, usage of managed accounts has grown steadily over the past number of years. Recent Vanguard research found that 66% of its participants in defined contribution (DC) plans had a professionally managed allocation at year-end 2022, up from 40% at year-end 2013.
This is compared to 59% of participants who were invested in a single TDF and 7% in a managed account service, with less than 1% in a single balance fund.
Forty-one percent of Vanguard DC plans offered managed account advice in 2022, and more than eight in 10 plans offered the services. As a result, 77% of participants had access to the service. In the past five years, the number of plans offering a managed account program has grown by close to 30%, Vanguard found in its report.
Target-date funds
On the TDF side, the percentage of plans offering a target-date fund grew to 96% in 2022. Unsurprisingly, nearly early all Vanguard participants (99%) were in plans offering TDFs, and 83% of those participants had invested at least a share of their assets in them.
In the report, Vanguard breaks down its participants who invest in TDFs into two parts: “Pure investors,” or “mixed investors.” The former are those who invest all of their assets in a single TDF and have accounted for 71% of all target-date investors in 2022, said Vanguard. Seven in 10 of these investors joined their plan under automatic enrollment and had typically enrolled in a single fund by default. About three in 10 voluntarily enrolled, with most of them choosing a single target-date fund.
“Mixed investors,” however, utilize a TDF with other investments or hold multiple TDFs, Vanguard reported. These investors accounted for 29% of all target-date investors in 2022.
Older employees prefer managed accounts
In its research, Vanguard notes that older workers are likelier to invest with managed accounts, while younger employees skew towards TDFs. Participants who constructed their own portfolios were likely older and longer tenured, with higher average and median balances in 2022, found Vanguard.
On the other hand, single target-date investors were shorter tenured, with lower account balances, and likelier to have joined an automatic enrollment program and defaulted into the fund.
The median age for managed account participants was 49 years old, while single target-date fund participants averaged 10 years younger, at 39 years old. Managed account participants held an average account balance of $158,321, while single TDF participants had $11,780 stored into their account.
Additional findings from Vanguard’s research can be found here.
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