Lifecycle funds, an auto-diversified target-date fund with an age-based glide path, are the investment of choice in an increasing share of participants.
Summary
Defined-contribution plan participants are responsible for deciding how to invest their account contributions and assets. Many workers, however, have difficulty making these decisions due to behavioral biases, a lack of financial literacy, or both. This paper examines how workers allocated their contributions and assets in employer-sponsored retirement plans within the TIAA system over the years 2012 to 2018.The findings provide insights into participants’ investment product preferences and risk profiles.
Key Insights
- Younger participants are more likely to have defaulted into a Lifecycle fund and tend to use it as a single comprehensive fund-of-funds investment.
- Older participants who invest in a Lifecycle fund tend to use it as part of a broader portfolio strategy.
- Older workers, participants with longer TIAA system tenure, and higher asset participants are more likely to customize their investment portfolio across multiple asset classes and investment products.
