The latest analysis from the Public Research Retirement Lab (PRRL) finds that while target-date funds (TDFs) have gained popularity with younger investors, the funds remain misunderstood by savers.
The report identifies participants who invested in only one investment type as well as those allocating towards multiple forms of investments, finding that while 51% of participants invested in just one, 49% invested in multiple funds. Twenty-one percent utilized two to three investment types, 14% used four to five investment types, and 13% allocated to over five kinds of investments.
401(k) participants were likeliest to invest in multiple funds, with an average of 2.8 investment types, compared to 2.17 investment types for 457(b) plans and 1.44 types for 401(a) plans.
The most popular type of investment was the off-the-shelf TDF, at 55% of investors who utilize this fund. This was followed by custom target-date funds at 16% and stable-value funds at 12%.
Savers in their 20s were likelier to be single-fund investors, at 70.8%, compared to 38.5% of savers in their 50s who are exposed to a single fund. Investors in the 50s also invested in 2.99 types of funds while those in their 20s allocated savings to 1.95 investment types. “For example, only 3 percent of single-investment-type participants in their 20s invested in stable-value funds, while this figure rose to 20 percent for participants in their 60s,” the PRRL report stated.
While younger investors in their 20s tended to invest in TDFs, stable-value funds were more popular among older participants enrolled in 401(a) and 457(b) plans.
Among investors who used multiple investment types, 63% allocated towards TDFs, balanced funds, or both, showing a disconnect among investors as these funds are already well-diversified. Further, the report shows that 41% of investors with some investment in TDFs or balanced funds were also allocating to a different investment type.
The Public Retirement Research Lab is a collaboration of the Employee Benefit Research Institute (EBRI) and the National Association of Government Defined Contribution Administrators (NAGDCA). The sample for this analysis includes 2.3 million participants with total assets of $148 billion.
SEE ALSO:
Recommendations to the ERISA Advisory Council Regarding Target Date Funds
Hybrid Annuity TDFs Ideal for Specific Investors
Echo Boomers are the Next Retirement Wave. What Will Target Date Funds Look Like for Them?
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.