Target-date funds continue to be 401(k) favorites

Investing in target-date funds continues to be popular in 401(k) plans, especially among participants in their 20s, according to a study by the Investment Company Institute and the Employee Benefit Research Institute.

Younger plan participants had allocated 54.1% of their 401(k) assets to TDFs at the end of 2019, the study found, compared to an allocation of 28.8% among participants in their 60s. And 31.3% of 401(k) assets in the database overall were invested in target-date funds at year-end 2019, up from 26.6% at the end of 2018.

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The study also showed that more workers are investing in equities, and linked that to the use of target-date funds.

“As 401(k) plan participants have increased their investment in target-date funds, their overall share of assets in equities has grown,” Craig Copeland, EBRI director of wealth benefits research, said in a statement.

About two-thirds of participants in their 20s had more than 80% of their 401(k) plan accounts invested in equities at the end of 2019, up from less than half of participants in their 20s at the end of 2007. Overall, almost 95% of 401(k) participants had at least some funds invested in equities at year-end 2019.

Only 5% of plan assets were invested in company stock at the end of 2019, down from 19% in 1999.

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