These days I limit the time I spend on the news. I’d rather focus on something more positive, like my morning yoga or that first cup of coffee to start the day. When I do glance at the headlines, I sometimes wonder, “Isn’t there anything good going on in the world?”

I’m happy to say the answer is yes when it comes to the 401(k) autopilot plan. Thanks to a decade of advancements in plan design and the rise of target-date investments, plan participants are better investors today than ever before.

Plan design is fast turning the average participant into a model investor.

An early criticism of the 401(k) plan was that too many workers wouldn’t have the time or knowledge to build and maintain a well-balanced investment portfolio. With the rise of autopilot plans that employ target-date investments, most participants now turn portfolio construction over to investment professionals.

As a result, today more than 70% of participants own a well-balanced portfolio, compared with less than 50% ten years ago. In addition to being well balanced, participants today tend to think long term. Only 8% made an exchange on their plan account in 2016. While there’s still some way to go, plan design is fast turning the average participant into a model investor.

Extremes are fading away

As the majority of participants choose to buy and hold a well-balanced portfolio, three types of extreme investors are fading from the picture:

The risk seekers—These steely-eyed investors own a 100% stock allocation. That can be appropriate for a participant with a very long time horizon and the gumption to hang on when the market drops. After experiencing a serious decline, though, many change their minds. On the cusp of the Great Recession in 2007, 17% of participants were all-stock investors. Ten years later, only 6% of participants were so gung ho on stocks.

The risk avoiders—At the other end of the spectrum are participants who don’t own any stocks in their retirement plans. Running away from market risk, they rush headlong into shortfall risk—the chance they won’t accumulate enough money for retirement. In 2007, 11% of participants didn’t own any stocks. Ten years later, just 4% of participants were so risk-averse.

The company loyalists—These investors may have too much of what could be a good thing, investing more than 20% of their plan holdings in the stock of their employers. While there’s a chance that many will see strong gains, investors may not be adequately compensated for the risk inherent in such a concentrated position. In 2007, 12% of participants overall had more than 20% invested in the stock of their employers. Ten years later, that number had fallen by half to 6%.









Note:  All comparative data is from How America Saves 2017.

Why balance matters

Owning a diversified portfolio, such as one with target-date investments, can serve participants well when the market is doing well—and when it isn’t. Participants need to accumulate a truly significant sum for retirement over their working lives, but fortunately, most have time on their side. Their best chance for success may be to own a broadly diversified portfolio for many, many years—exactly what more and more participants are doing. Which is the good news that I wanted to share with you today.

This is the second of two posts on the benefits of plan design. Here is the first: Two cheers for plan design. 


  • All investing is subject to risk, including the possible loss of the money you invest.  There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.  Diversification does not ensure a profit or protect against a loss.
  • Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a target-date fund is not guaranteed at any time, including on or after the target date.