Ever wonder which retirement plans employees are using the most?
The graph below outlines the most popular investment choices by employees during the years 2003, 2005 and 2009.
“Diversified investments was the most popular investment choice in 2009, with an 81 percent participation rate for employee contributions, followed by common stock funds at 63 percent,” says the Bureau of Labor Statistics. Life-cycle funds were the third most popular, trailing behind at 30 percent participation.
Each of the available options carries varying degrees of risk. In 2009, Economic uncertainty most likely affected investor confidence and contributed to the large influx of participation in Diversified Investments.
Diversified Investments represent a relatively safe way to put away money, as the portfolio is spread out across many different securities.
Generally speaking, employees invest more conservatively when they perceive an environment of uncertainty. Of course, riskier ventures have higher payoffs.
“Company stock investments typically have the highest risk, along with the highest potential returns. Common stock funds, diversified investment funds, and life-cycle funds have varying amounts of risk to meet the large range of employer of employee investment profiles. Available investment options for workers’ own contributions or employers’ matching funds are fairly similar, but there is some variation,” says the B.L.S.
It will be interesting to see if employee participation in Diversified Investments will continue to rise, or if the trend will level off as the economy improves.