More Investors Using Just One Savings Fund For Retirement

By STAN CHOE

The Associated Press

NEW YORK - More and more retirement savers have their entire 401(k) account in just a single mutual fund, and investment advisers are fine with it.

Last year, for the first time, more than half of Vanguard's 4.6 million retirement account participants were invested in a single target-date retirement fund, according to an analysis by the mutual fund giant.

This may sound anathema to an industry that preaches the value of diversification, but these funds are designed to provide it for investors in one package. And after years of trying to manage their own investments, savers are finding it easier to pick one fund that does the job, even if the fees may sometimes be higher.

The stakes are high that workers choose wisely because they're increasingly in charge of their own retirement savings, with traditional pension plans rare and pressures mounting on Social Security.

"People need to get two things right: They need to save enough, and they need to invest appropriately," said Jean Young, senior research analyst with the Vanguard Center for Investor Research. "That sounds easy, but it's not."

Target-date retirement funds can help with the second of those responsibilities. Savers pick a fund pegged to the year they hope to retire. If the date is far away, the fund loads up on stocks and other high-growth investments.

As the targeted year approaches, the funds automatically move into more conservative investments so that savers don't get wiped out by a plunge just before retirement, like what occurred in 2008.

It's a far cry from a couple decades ago, when one of the biggest selling points for a 401(k) plan was all the choice it afforded investors. Want a fund that specializes in just high-risk foreign bonds? How about stocks of tiny companies from Europe? Or technology stocks? No problem, you were in control.

Ultimately, many investors felt overwhelmed by the amount of choice, and that led some to have either too much or not enough risk in their 401(k). The migration into target-date funds has helped investors avoid these two danger zones of investing.

In 2008, for example, 11 percent of 401(k) participants had nothing at all invested in stocks, according to Vanguard's records. That may sound like a good thing, considering the beating stocks took during the financial crisis, but anyone who didn't own stocks missed out on the ensuing bull market, one of the best in history. Plus, conventional thinking says even the oldest savers should have a slice of their nest eggs in stocks. That's because retirement can last for decades, and stocks can provide some of the best protection against inflation.