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Young Savers Putting Stock in Retirement


In the wake of a “lost” decade for U.S. stocks, it’s not surprising that 401(k) investors are reducing their exposure to equities. What is surprising, though, is that younger 401(k) investors–a group often suspected of harboring a Depression-era-like fear of stocks–are moving in the opposite direction.

“Fears that younger participants in 401(k) plans would abandon stock investing are not borne out by the data,” says a press release that accompanies a report issued Wednesday by the Investment Company Institute and the Employee Benefits Research Institute, which examined the accounts of more than 23 million 401(k) plan participants.

The report attributes younger investors’ affinity for stocks to the “greater use of target date funds,” portfolios that automatically channel an investor’s 401(k) savings into a diversified mix of investments–and gradually shift from stocks to bonds as the investor ages. Currently, about 7 out of 10 401(k) plans offer a target-date fund. To bolster retirement security, a growing number of employers have begun to automatically enroll new employees–who tend to be younger–into those funds.

Over the past decade, 401(k) investors have adopted a more “balanced” approach to investing. For example, in 2000, 12.7% of participants had nothing in equities. At the same time, 54.1% had funneled more than four-fifths of their money into stocks. Today, the portion of participants at both extremes has declined–to 11.8% and 40%, respectively.

Still, thanks to target-date funds, investors in their twenties are an exception: About 60% now have at least 80% of their 401(k) money in stocks–up from 55.3% in 2000, the report says.

“That finding runs counter to the notion that younger participants, whose investing experience might be framed by the bear markets of 2000 and 2008, would become a “lost generation” avoiding all stock market investments,” says the release.

Among the study’s other findings:

  • The share of 401(k) assets invested in company stock fell to 8% in 2010.
  • The percentage of participants with 401(k) loans outstanding remained unchanged, vs. 2009, at 21%.
  • The average 401(k) balance was 3.4% higher at year-end 2010 than at the end of 2009. (Still, because the participants in the 2010 and 2009 databases are not the same, this does not mean that the average participant experienced a 3.4% gain.)


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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.