Who has the time to choose a mutual fund?
NEW YORK — It may seem primitive to some, but not so long ago most investors figured out for themselves how much of their 401(k) retirement plan to put into stocks or bonds. Now, more are letting a target-date mutual fund take care of that, particularly younger workers.
One of every three savers with a 401(k) plan administered by Fidelity Investments has their entire account invested in just one target-date mutual fund, according to recent survey results.
The reliance on target-date funds is even more pronounced among the youngest workers. About 72 percent of those 20 to 24 have their complete 401(k) account balance invested in a single target-date fund. For workers 30 to 34, it's nearly half: 45 percent.
“For young people, many haven't really invested in the stock market before, and it's a great solution for them to dip their toe in,” says Jeanne Thompson, vice president of thought leadership at Fidelity Investments.
Target-date funds are intended to be all that a saver will need for their nest egg through retirement, by taking care of the strategic investment decisions. Investors pick a fund set for the year that they hope to retire. When that date is far off, the fund owns mostly stocks, hoping to reap the strong long-term returns that stocks can provide. As the hoped-for retirement year gets closer, target-date funds rely more on bonds, which carry less risk of a sharp drop in price.
Fidelity is the nation's largest 401(k) administrator with 12.6 million accounts, and its survey results include data through Sept. 30.
Others have seen similar trends. Vanguard found that 31 percent of all contributions made to the 401(k) and other defined-contribution plans that it administers went to target-date funds in 2012, up from 8 percent five years earlier. It also saw younger workers more reliant on target-date funds than older ones.
The sharp disparity may not be the result of a conscious choice. Nearly one of every four 401(k) plans that Fidelity administers enrolls workers automatically, up from one in eight five years ago. When that happens, the default investment choice for contributions is usually a target-date fund.
Although they don't rely as heavily on target-date funds as their younger peers, the number of older workers relying on them is growing. Twenty seven percent of all Fidelity 401(k) participants ages 45 to 49 have their entire balance in a target-date fund. That's up from 24 percent a year ago and from just 2 percent a decade ago.
Other highlights from Fidelity's survey of 401(k) plan participants include:
• 401(k) accounts have never been bigger: Participant had an average balance of $84,300 at the end of September, a record high. That's up 11 percent from $75,900 a year earlier. Nearly three quarters of that growth came from surging prices for stock mutual funds: The Standard & Poor's 500 index returned 19 percent in the 12 months through Sept. 30, including dividends. The rest came from the contributions that workers and their employers made.
Over the past 10 years, contributions and market gains have played roughly equal roles in boosting 401(k) balances.
• Workers are saving more: Fidelity says 401(k) participants are putting away an average $6,000 annually. Contributions have never been that high. Employer contributions are adding an average $3,240 annually.
Total 401(k) contributions have risen 1.9 percent from a year earlier, slightly better than the rate of inflation. The Consumer Price Index rose 1.2 percent in September from a year earlier.
Workers should be saving 10 percent to 15 percent of their annual income, including their employers' contributions, Fidelity suggests.
• Compare your account balance based on age: Younger workers just starting out don't have anywhere close to the national average of $84,300. Those from 25 to 29 have an average of $12,200. Workers in their later 30s have an average $48,900 in their 401(k) accounts, and people between 45 and 49 have an average of $94,900. Late 50-somethings, who have had decades to build their accounts, have an average of $147,900.
That said, Fidelity suggests that your nest egg be at least eight times your annual income to comfortably retire.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- News out of Europe, Syria batter stocks
- Sears leaving Century III after 3 decades in West Mifflin
- MarkWest fined $150,000 for gas flaring at Washington County plant
- Coal gathering opens with dour assessment, political vitriol
- Finleyville maker of luxury kids’ structures learns from housing bust
- Existing home sales fall in August, snapping streak of gains
- Balancing gas pipeline expansion, environmental unease a problem in Pa.
- Hospitals turn to technology to tear down language barriers with patients
- Treasury plans steps to curb tax inversions
- Symposiums to spotlight Pittsburgh’s role as an energy powerhouse
- Stocks slip on China growth jitters