The Employee Benefit Research Institute (EBRI) is out with its annual review of the nation’s 401(k)s and gives us something to be thankful for: a number of positive trends in the nation’s greatest trove of personal savings. (Social Security, that’s another story.)
Here are some of the encouraging findings. The full report has much more.
- Though the average 401(k) balance plunged 27.8% in the market drop of 2008, between 2003 and 2009, it experienced average annual growth of 10.5% to $109,723 at year-end 2009. That’s a 32% rise over 2008, a period in which the S&P 500 climbed a more modest 23%.
- Half of all 401(k)s had average annual growth greater than 14.7% over that same six year stretch.
- The down market did not completely scare investors out of stocks. “At year-end 2009, 60 percent of 401(k) participants’ assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock. Thirty-six percent was in fixed-income securities such as stable-value investments and bond and money funds.”
- 401(k) savers are creating balanced portfolios. “At year-end 2009, nearly 10 percent of the assets in the EBRI/ICI 401(k) database was invested in target-date funds and 33 percent of 401(k) participants held target-date funds. ” The benefits of which include automatic account rebalancing.
- Especially the young. “Across all but the oldest age group, more new or recent hires invested their 401(k) assets in balanced funds, including target-date funds. At year-end 2009, about 42 percent of the account balances of recently hired participants in their 20s were invested in balanced funds, compared with 36 percent in 2008, and about 7 percent in 1998.”
- Accounts invested in company stock continued to shrink, reflecting more diverse investments.
There was some not-great news. Loans are up. In 2009, 21% of all 401(k) participants eligible to had borrowed against their account, up from 18% the year before.
Mark Miller over at Reuter’s Deep Pockets blog worries over one piece of the study: the rising percent of younger savers who are in balanced funds, which, he thinks, may not provide enough exposure to equities. You may not know it by their infatuation with tattoos, but Gen Y may be too conservative, Miller writes:
The new report follows earlier indicators of a new conservatism among young investors. A separate ICI survey of mutual fund investors showed that just 34 percent of retirement investors under age 35 were willing to take substantial or above average risk in their portfolios in 2009, down from 48 percent in 2005.
…Financial experts usually advise young investors to sock away up to three-quarters of their retirement account contributions in stocks to keep up with inflation and accumulate a bigger nest egg for retirement. These ”new conservatives” will fall short of their retirement goal if they don’t get more aggressive with stocks.