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How Americans Invest in 401(k)

Contributed by mm | January 4, 2008 2:01 AM PST

401k.jpgThe beginning of a year can be a good time to perform a 401(k) check-up. And before that, a timely reading will be this recent feature from USA Today on a study of how American employees invest their retirement fund in 401(k) accounts.

The biggest finding from the survey of 1.8 million 401(k) account holder is: 21.9% of 401(k) balance is invested in company stock. Considering that the Enron debacle that wiped out the lifetime savings of thousands is still in recent memory, it is surprising to see many people are still committing a good portion of their retirement fund to their employers' fate.

6347-401kstudy.jpg

Other than that, the breakdown of 401(k) assets in the study does not offer much value on the typical asset allocation of an 401(k) account. One couldn't blame that 401(k) participants are holding over 20% of assets in cash-like funds (money market fund or stable value fund) -- some of them are near or already in retirement age.

Two other things that are worth mentioning:

1) Target funds are becoming mainstream with 9% of assets in such age-based or date-based funds.
2) Self-directed brokerage is still a newbie with only 0.5% of total 401(k)assets. (I'm glad that my employer is about to allow this option in several months.)

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This Post Has Received 4 Comments. Share Your Opinions Too.


Amit C Commented on January 4, 2008

The data is skewed due to limited options in a tupical 401k (probably a good idea as per the "Paradox of choice" author), however it means there are better Dom Lrg Cap than Intl funds.

Amit


Tim Commented on January 4, 2008

My wife's 401(k) company match is all in company stock. Even worse, until last year she couldn't sell it until she retired! (I think her company was forced to allow participants to sell at any time due to a recent law change - we of course jumped on this right away). So she had built up quite a bit of company stock with no way out of it. I wonder how common this is/was and whether it could account for some of that 22%?


John Commented on January 4, 2008

don't some employers offer discounted prices on their company stocks most likely? thus people are more likely to have those high numbers of company stocks. but good point that they should diversify more.


Myself Commented on January 4, 2008

The company I work for now allows us to change our entire company match to whatever fund we have available to the plan. And there are several funds that don't include the company itself.



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