Defined contribution participants in plans record-kept by Vanguard Group have moved away significantly from extreme equity investing due to the growth of target-date funds and automatic enrollment.
Vanguard defines extreme investing as participants holding more than 90% equity in their accounts, and the company's research shows that the shift to more balanced allocations has occurred among all age groups.
"Our data suggests that automatic solutions and the rise of TDFs have played substantial roles in changing DC saving and investment behavior," said a report issued earlier this month.
The research analyzed 219 DC plans, covering about 250,000 participants, for which Vanguard performs non-discrimination testing to make sure plans don't unfairly favor highly compensated employees.
Among baby boomers (ages 57-70), Vanguard found that 18% had accounts with 100% equity and 16% had accounts with 91%-99% equity in 2006. By 2021, according to the latest available data, the combined extreme equity categories was 13% for voluntarily enrolled participants and 9% for auto-enrolled participants.
The trends are similar for three other age groups:
Extreme investing also applies to excessively conservative allocations, the Vanguard report said.
In 2006, for example, 24% of Gen Z participants had no equity allocation. By 2021, the rate was 1% for voluntarily enrolled participants and zero for auto-enrolled in 2021.
Among other groups reporting no equity allocation:
The Vanguard report also noted the profound impact of auto enrollment on participation rates among all age groups. In aggregate, plans had a 62% participation rate in 2006 vs. 82% in 2021.
A closer look at 2021 data show that voluntarily enrolled plans had a 63% participation rate vs. 94% for auto-enrolled plans.
