A recent research report from Vanguard breaks down the growth trend for target date funds and their impact on DC plan investment strategies. In 2012, the report found, 27% of Vanguard participants and two-thirds of new plan entrants were invested in a single TDF. Vanguard anticipates that 55% of participants and 80% of new plan entrants will be invested in a TDF by 2017.
There are two types of participants investing in TDFs. The first is “pure investors” — people who hold only a single TDF. They accounted for 54% of all TDF investors in 2012. The other type is “mixed investors” — people who hold a TDF in combination with other investments, or (rarely) multiple TDFs. Increased TDF adoption by either type of participant can have positive effects on participant portfolios because they eliminate extreme equity allocations. Non-TDF participants tend to hold greater extremes in equity.
