Younger Investors Not Shy About Stocks in 401(k)s

More younger U.S. workers saving for retirement have a higher allocation to stocks than a decade ago, two groups that studied buying patterns said.

About 60 percent of 401(k) investors in their twenties had more than 80 percent of their accounts invested in equities at the end of 2010 compared with about 55 percent of investors in 2000, according to a report by the Investment Company Institute, a trade group for the mutual-fund industry, and the Employee Benefit Research Institute, a nonprofit.

“Younger investors are pursuing a diversified investment strategy that still relies heavily on stocks,” said Sarah Holden, senior director of retirement and investor research at ICI.

The numbers from EBRI and ICI, both based in Washington, were drawn from a database of about 23 million active 401(k) savings-plan participants. An estimated 51 million American workers were using 401(k)s at year-end 2010, and assets totaled about $3 trillion, according to the report.

About 21 percent of savers in their sixties had more than 80 percent of their accounts invested in stocks last year compared with about 40 percent of investors in 2000, Holden said. “We see a tempering of the allocation to stock among our older participants,” she said.

No Equities

Separate studies by ICI have shown that U.S. households are less willing to take on financial risk in the wake of the financial crisis in 2008, said Holden. Concern that younger individuals may be timid about buying stocks hasn’t been borne out by the data on 401(k) participants, she said.

The Standard & Poor’s 500 Index (SPX) gained about 826 percent over the 30-year-period from Dec. 31, 1980, to the end of 2010.

The number of younger workers without equities in their 401(k) accounts also decreased at year-end 2010 to 9.4 percent from 14.6 percent in 2000, said Jack VanDerhei, research director at EBRI.

“A lot of that may not necessarily be due to employees themselves actively making that choice as much as it’s them being automatically enrolled, being put in target-date funds,” VanDerhei said.

Target-Date Funds

Target-date funds move money from riskier investments such as stocks to more conservative alternatives like bonds as an investor reaches retirement. The funds were available in 70 percent of 401(k) plans in 2010, according to the study. At the end of last year 49 percent of participants in their twenties held them, compared with 28 percent of savers in their sixties, the report said.

At the end of 2010, the average account balance of workers was $60,329, compared with $58,351 in 2009, the data show. The balances in this study are not based on a consistent sample year-over-year, the report said.

The average balance at Fidelity Investments, the largest provider of 401(k) plans with almost 11.7 million participants, was $64,300 as of Sept. 30, a decline of about 2 percent from a year earlier, said Beth McHugh, vice president of market insights for the Boston-based firm.

Outstanding Loans

The percentage of participants with outstanding loans from their 401(k)s remained unchanged at year-end 2010 compared with 2009, the study said. Last year, 21 percent of workers had loans outstanding, which was higher than the 18 percent at the end of 2008, according to the report.

The number of people borrowing from their retirement- savings plans reached a 10-year high in the second quarter of 2010 as Americans grappled with slowing economic growth, according to a separate report by Fidelity Investments released in August last year.

Total U.S. retirement assets including 401(k) and IRA accounts decreased about 7.5 percent to $17 trillion as of Sept. 30, according to a separate report by the ICI released today.

To contact the reporter on this story: Margaret Collins in New York at mcollins45@bloomberg.net.

To contact the editor responsible for this story: Rick Levinson at rlevinson2@bloomberg.net.

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