The greater use of target-date funds and automatic enrollment in defined contribution plans has contributed to higher allocations by participants in equities, according to a Vanguard Group Inc. study.
Participants up to age 35 who invested in target-date funds as of Dec. 31 held an average 8.5 percentage points more in equities than those who did not, according to the report, "Generations: Key Drivers of Investor Behavior." Those ages 36 to 54 who invested in target-date funds held 7.9 percentage points more in equities than those who did not.
The average equity allocation for the youngest participants — age 20 — in the Vanguard universe rose to 84.7% in 2010, from a low of 40.7% in 2003. The study attributed that to target-date funds and auto enrollment as well.
John Ameriks, principal and head of Vanguard's investment counseling and research departments, said in a telephone interview that as of Dec. 31, 2009 — the most recent data available — 80% of plans using auto enrollment have target-date funds as the default option.
“These design changes (which include target-date funds and auto enrollment) have helped people make a choice that is in their long-term interest,” Mr. Ameriks said. “You're going to see that participant choices are a lot less tied to what's happening in the market on a near-term basis. We think that's a positive development.”