After stuffing 401(k)s with stocks for over a decade, employees are cutting back on their equity exposure. The average portion of 401(k) dollars invested in equities dropped to 59 percent in 2008, according to a study of 2.7 million employees eligible for 401(k) plans by human resources consulting firm Hewitt Associates.
The record low exposure to the stock market is largely due to market declines but also participant transfers to more conservative investments. (Subsequent monthly Hewitt studies have found that equity exposure further dipped to another record low of 48 percent of 401(k) assets in February, but was back up to 52 percent in April.) Workers in their 30s had the largest equity exposure (63 percent) in 2008 while, while those age 60 and older had the lowest (49 percent). Interestingly, the average worker in their 20s invests more conservatively than those in their 30s and 40s. Participants over the age of 50 had the largest decline in equities during the course of 2008. Here’s how your allocation to equities compares to other people your age.
Percent of 401(k) Plan Balance Invested in Equities by Age Group
Age Equity Allocation
20s 60 percent
30s 63 percent
40s 61 percent
50s 55 percent
60+ 49 percent
Source: Hewitt Associates
The average worker spread their investments across 4.3 asset classes in 2008, Hewitt Associates found. The most popular asset classes were premixed portfolios such as target-date funds that expose investors to several asset classes when they are available (23 percent), GIC/stable value funds (20 percent),and large U.S. equity funds (16 percent). Company stock allocation declined to only 10 percent.
Making moves. The number of workers who transferred their account balances rose slightly to 19.6 percent in 2008 from 18.7 percent in 2007. Some of these workers were reacting to market swings. The most active trading days were typically the day after a large downturn in the market or days with an average return of negative 4 percent or more. Stable-value funds, which are generally considered less risky investments, were the big winners in 2008 and saw an 11 percent increase in asset allocation.
Also find out: Did You Lose More Money in the Stock Market Than Your Peers?