More Than Half Of 401(k) Participants Invest In A Single Target-Date Fund
When constructing their own retirement portfolios, about 10% of participants tend to hold extreme allocations (0% or 100% equities). With the advent of TDFs, three-quarters of all participants now have broadly-diversified portfolios—up from only half ten years ago. The rate of participants holding concentrated stock positions fell by half during the same timeframe. TDFs also help investors "stay the course" with their investment plans, with only 2% of TDF investors executing a trade in 2017.
"Target-date funds have revolutionized investing for millions of Americans, providing a ready-made, diversified portfolio for retirement savers," said
With more than
Smart plan design enhances retirement savings
Over the past decade, plan sponsors have implemented thoughtful plan designs to influence and improve employee retirement savings. The dramatic rise of TDFs—and subsequent portfolio construction benefit—has been driven by the adoption of automatic enrollment, which has tripled in the last decade to nearly half of plans. Plans with automatic enrollment have a 92% participation rate, compared with a participation rate of just 57% for plans with voluntary enrollment—meaning more employees are saving for retirement.
When automatic features were first introduced, many plan sponsors defaulted participants into plans at low rates in an attempt to prevent opt-outs. Half of plans now default participants in at a savings rate of 4% or higher, up from just one-quarter ten years ago. Not only are sponsors using higher default rates, but of those plans with automatic enrollment, two-thirds have also implemented automatic annual deferral rate increases. Importantly, automatic increases have helped to narrow the spread between deferral rates for participants in voluntary plans vs. automatic enrollment plans to just 0.3 basis points. When both employee and employer contributions are taken into account, the average savings rate of 10.5% has held fairly steady over a 15-year period.
"More people are participating in their employer-sponsored 401(k) plan than ever before, and saving at a healthy rate of about 10%," said
With
About Vanguard
Vanguard is one of the world's largest investment management companies. As of
1Based on industry average asset-weighted expense ratio of 0.66% at the end of 2017, Morningstar 2018 Target-Date Fund Landscape.
All data as of
For more information about Vanguard funds, visit institutional.vanguard.com or call 800-523-7064 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.
Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a
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SOURCE Vanguard
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