The majority of 401(k) assets continue to be invested in stocks, but individuals are increasingly more interested in diversifying their investments, as well — trends that benefit advisers and their employer clients should be staying abreast of.

On average, at year-end 2013, 66% of 401(k) participants’ assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock, according to new research from the Employee Benefit Research Institute and the Investment Company Institute.

See related: Top five 401(k) plan trends for 2015

In fact, more 401(k) plan participants held equities at year-end 2013 than before the financial market crisis at year-end 2007, and most had the majority of their accounts invested in equities, researchers at the institutes found. Two-thirds of participants in their twenties had more than 80% of their 401(k) accounts invested in equities at year-end 2013, up from less than half of participants in their twenties at year-end 2007.

Overall, the researchers found 90% of 401(k) participants had at least some investment in equities at year-end 2013.


Compared with years past, however, 401(k) participants have begun to seek more diversification of their investments. Only 7% of 401(k) accounts were invested in company stock at year-end 2013, down 62% since 1999, according to an EBRI/ICI brief on the new research. Recently hired 401(k) participants contributed to this trend since they tended to be less likely to hold company stock, the researchers say.

Target-date funds also continue to gain in popularity, with a majority (71%) of 401(k) plans now including target-date funds in their investment lineup. In fact, at year-end 2013, 15% percent of the assets in the surveyed EBRI/ICI 401(k) database were invested in target-date funds and almost half (41%) of 401(k) participants in the database held target-date funds.

See related: Target-date funds reveal shift in retirement adviser value proposition

“Target-date funds have become the core building block of most investment lineups,” says Craig Keim, director of defined contribution investment relationship management, T. Rowe Price. 

For benefit advisers over the last year or two, he says, “there has been a continued re-evaluation of target-date philosophy and making sure that plan sponsors have the right target-date funds and that they understand how their target-date fund operates, what the goals of that product are, and making sure that it aligns with their goals as plan sponsors.”

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