Younger, lower-salaried 401(k) plan participants who are automatically enrolled are more likely to invest only in target-date fund options than their older, higher-salaried peers, according to an EBRI study.
“Mixed TDF users (those invested in a target-date fund and other investment options) are likely to be middle-income and middle-wealth participants,” according to the study, “Investment Behavior of Target-Date Fund Users Having Other Funds in 401(k) Plan Accounts.” The findings, according to study, show that some mixed TDF investors apparently don't understand that TDFs are designed to be an “all-in-one” investment option.
About 55% of 401(k) plan participants invested in target-date funds at the end of 2007, also held other types of investments in their retirement accounts at that time, according to the study published by the Employee Benefit Research Institute.
“Holding TDFs with other funds could lead to an unexpected result of ending up with a potentially inferior portfolio in terms of risk/return tradeoff from more assets allocated to some sectors than the designers of the target date funds had planned,” the study said.
