Retirement Investing After the Bear: Less Risk, Better Balance

Once burned, twice shy. That essentially describes the average
retirement investor’s behavior in the wake of the past decade’s two bear
markets, according to a new report by the Investment Company Institute (ICI)
and the Employee Benefit Research Institute (EBRI).1 The report
shows shifting allocations within 401(k) portfolios.

The study, which looked at allocations of more than 23 million
401(k) accounts, showed that the share of participants with more than 80% of
their balances invested in stocks dropped from 54.1% in 2000 to 40.0% in 2010.
Older investors in particular reduced their stock holdings — with those in
their 60s reducing their equity allocations from 39.7% in 2000 to 21.4% in

Yet the report also showed that younger investors have not
shied away from stocks. On the contrary, the percentage of 401(k) participants
in their 20s with 80% or greater allocation to stocks rose from 55.3% in 2000
to 60.4% in 2010. The report attributes this to the greater use of target-date

“Growing use of target-date funds appears to be helping
to keep younger 401(k) participants invested in balanced portfolios, with
equity exposure to help their assets grow over the long term,” said Sarah
Holden, ICI senior director of retirement and investor research. “While
our surveys and others have shown that investors are less willing to take on
stock market risk, 401(k) plan features are countering that trend for plan
participants. That’s particularly valuable to provide younger participants
diversified portfolios that include growth-oriented investments.”

Other study findings:

  • The shares of 401(k) participants who had either
    no equities at all or high concentrations of equities were lower in 2010 than
    in 2000.
  • The share of 401(k) assets invested in company
    stock fell to 8% in 2010.
  • The average 401(k) balance was 3.4% higher at
    year-end 2010 versus a year earlier.
  • In 2010, 21% of all 401(k) participants eligible
    for loans had loans outstanding against their 401(k) accounts, unchanged from
    year-end 2009, but up from 18% at year-end 2008.
  • Participants’ 401(k) loan balances declined
    slightly. Loans outstanding amounted to 14% of the remaining account balance,
    on average, at year-end 2010, compared with 15% at year-end 2009.

For a copy of the full report, go to


1Source: EBRI/ICI, “401(k) Plan Asset
Allocation, Account Balances, and Loan Activity in 2010,” December 2011.


April 2012 — This column is provided through the Financial
Planning Association, the membership organization for the financial planning
community, and is brought to you by Ronald J VanSurksum, CFP®, a local member
of FPA.

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