What’s in your 401(k)? For many, just one fund

NEW YORK — More and more retirement savers have their entire 401(k) account in just a single mutual fund, and investment advisers are fine with it.

Last year, for the first time, more than half of Vanguard’s 4.6 million retirement account participants were invested in a single target-date retirement fund, according to an analysis by the mutual fund giant.

This may sound anathema to an industry that preaches the value of diversification, but these funds are designed to provide it for investors in one package. Savers are finding it easier to pick one fund that does the job, even if the fees may sometimes be higher.

Workers are increasingly in charge of their own retirement savings, with traditional pension plans rare and pressures mounting on Social Security.

With target-date retirement funds savers pick a fund pegged to the year they hope to retire. If the date is far away, the fund loads up on stocks and other high-growth investments. As the targeted year approaches, the funds automatically move into more conservative investments so that savers don’t get wiped out by a plunge just before retirement.

It’s a far cry from a couple decades ago, when one of the biggest selling points for a 401(k) plan was all the choice it afforded investors.

Ultimately, many investors felt overwhelmed by the amount of choice, and that led some to have either too much or not enough risk in their 401(k). The migration into targetdate funds has helped investors avoid these two danger zones of investing.

In 2008, for example, 11 percent of 401(k) participants had nothing at all invested in stocks, according to Vanguard’s records. That may sound like a good thing, considering the beating stocks took during the financial crisis, but anyone who didn’t own stocks missed out on the ensuing bull market, one of the best ever. Plus, conventional thinking says even the oldest savers should have a slice of their nest eggs in stocks. That’s because retirement can last for decades, and stocks can provide some of the best protection against inflation.

Last year, thanks in part to the rise of target-date funds, 3 percent of participants had nothing invested in stocks.

Likewise, the percentage of savers who have their 401(k) invested entirely in stocks has declined. An all-stock portfolio can produce big gains over the long term — but only if investors resist the temptation to sell low during a downturn. That ends up being more difficult than many investors envision, and target-date funds help cushion the blow by keeping at least a small portion of investors’ nest eggs in bonds.

Investors should also be aware that some targetdate funds take on more risk than others, with bigger portions of stock at each age milestone. They need to be comfortable with their fund’s level of risk.