DC Plan Participants Investing in More Funds

On average, defined contribution plan participants include 5.3 funds in their accounts in 2011 - nearly double what they had in 1996, according to a Spectrem study.

Spectrem said that while this partly reflects an increase in the average number of funds plan sponsors offer – from 6.3 to 19.4 – it’s also a sign that investors are increasingly focused on diversifying their retirement portfolios. Thirty-seven percent of participants cited diversification as the number one reason for using more funds. 

In 2000, the average number of funds was 3.4 and as recently as 2005, participants were investing in 4.6 funds.In addition to an increase in the number of funds being offered, Spectrem attributed the growth in number of funds used to the increase in participant education efforts. 

About half (50%) of the participants in the Spectrem survey had some or all of their DC assets invested in asset allocation funds, up from 36% in 2008. And a larger portion of participants are using the asset allocation funds for some of their money, from 13% in 2008 to 24% today.  

About 72% of investors had some form of asset allocation fund offered within their plan; some had lifestyle funds, many had target-date funds, but the largest percentage (34%) had both types of funds available in the plan.  

Spectrem said the popularity of asset allocation funds is expected to increase as investors become increasingly comfortable with relying on the investment expertise of providers.  

More information on the Spectrem survey is here.