The 7 Most Popular 401(k) Investments

Investment selections vary by age, but one type of fund is universally popular.

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Equity funds are clearly the most popular investment choice for 401(k) participants. But other investment selections vary largely as a function of age and job tenure. Among young and newly hired workers, target-date funds are the second most common investment choice. Investors on the verge of retirement are more likely to choose stable value funds. Here’s a look at the seven major types of investments that hold 96 percent of company 401(k) plan assets.

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Equity funds. Despite stock market turmoil, 41 percent of all the money held within 401(k)s is invested in equity funds, up from 37 percent in 2008, according to an Employee Benefit Research Institute and Investment Company Institute analysis of 20.7 million 401(k) participants. Workers in their 30s and 40s typically have half of their retirement account balance invested in equities, an amount that drops to a third for workers in their 60s. Many 401(k) participants who don’t own equity funds have other exposure to the stock market through target-date funds, balanced funds, or company stock.

Guaranteed investment contracts and stable value funds. Employees have 13 percent of their nest egg invested in stable value funds and guaranteed investment contracts. These investments are most popular among 50 and 60-somethings, the latter of which has 20 percent of their account balance in these funds. In contrast, 20- and 30-somethings allocated just 6 percent of their portfolio to stable value funds in 2009.

Bond funds. Bond funds also increasingly become a part of worker portfolios as they age. The typical 20-something has 8 percent of their 401(k) invested in bonds, while 60-somethings invest 14 percent of their nest egg in bond funds. Overall, 11 percent of 401(k) dollars are invested in bond funds.

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Target-date funds. These automatically rebalanced funds make up 10 percent of all 401(k) investments and are used primarily by young, recently hired retirement savers. Almost half (47 percent) of employees with 2 or fewer years on the job hold target-date funds, compared to 29 percent of participants with five to 10 years of job tenure and 19 percent of 401(k) participants who have been at the same job for over 30 years. Target-date funds make up nearly a quarter (24 percent) of the typical 20-something's 401(k). That amount trails off to just 8 percent among 60-somethings.

Company stock. Many companies provide a 401(k) match in the form of company stock, which is a big contributor to company stock making up 9 percent of the value of 401(k) plans. Company stock ownership within a 401(k) plan peaks at middle age, making up 10 percent of the nest egg of 50-somethings. Stock ownership is lower for both older and younger workers. Employees of large companies with more than 5,000 401(k) participants were considerably more likely to be offered company stock as an investment option than workers at smaller firms in 2009.

Balanced funds. Balanced funds, not including target-date funds, make up 7 percent of all 401(k) assets. The youngest retirement savers in their 20s have the most invested in balanced funds (11 percent), while 50 and 60-somethings have the least (7 percent).

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Money funds. These conservative investments, which make up 5 percent of 401(k) accounts, are typically used by people on the verge of retirement. Those in their 60s have 7 percent of their nest egg invested in money funds compared to 4 percent among workers in their 20s, 30s, and 40s.