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One in a series of articles spotlighting data from How America Saves 2023.
A large chunk of retirement readiness depends on participants investing appropriately throughout their saving years. And as Vanguard’s new research paper points out, they’re getting better at it.
Looking back at almost 20 years of participant investing, we see that asset allocations are steadily improving thanks to professionally managed allocations—and growing adoption of target-date investments.
Target-date funds offer a professionally managed allocation that can help participants mitigate risk in their portfolios by limiting their exposure to stocks as they move along an investment glide path and approach retirement.
While younger investors may stockpile equities in their portfolios because they theoretically have time on their side to recover from market losses, older participants may want to guard against such losses by decreasing their equity exposure in favor of less-risky fixed income investments.
Target-date investments and managed accounts are designed to adjust investors’ allocations automatically, resulting in more age-appropriate portfolios and fewer extreme ones (too many stocks or too few).
Plan design has played a major role in the rise of age-appropriate allocations. According to How America Saves 2023, more plan sponsors are improving their plans designs to allow their participants to invest in target-date funds and managed accounts. As a result, their portfolios are better aligned with their age, which can lead to—as Vanguard’s research finds—better retirement outcomes.
For more participant data and insights, see How America Saves 2023.
Notes:
- 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 target-date funds is not guaranteed at any time, including on or after the target date.
- All investing is subject to risk, including the possible loss of the money you invest.
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