Study Reveals Some IRA Investors Take an Extreme Approach

An all-or-nothing approach is preferred by some investors


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The Employee Benefits Research Institute released a study showing some investors take an all-or-nothing approach when it comes to investing in an IRA. The report defined extreme allocations as having less than 10% or more than 90% in a particular asset class.

The report revealed that 56% of IRA owners had either all of their IRA money in equities or none in equities in 2010 and 2012. Roughly 33.2% opted for no equities and 22.5% were more comfortable with taking an all-equity approach.

Furthermore, older investors or those who held a traditional IRA tended to have less of their portfolio in equities. Older investors most likely shied away from placing too much of their portfolio in equities due to a shorter retirement time horizon.

Roth IRA accounts were found to have the most assets in equities (60.4%) and balanced funds (12.5%). In contrast, traditional IRAs had the lowest percentages in equities (49.6% to 52.2%).

The report also indicated that investors with larger balances had the lowest combined equity exposure. There were no significant gender differences when it came to IRA investment style.

Other findings:

  • Except for those younger than age 25, the average equity allocation for each age group was higher for those who held Roth IRAs than for owners of the other IRA types. Owners of traditional IRAs had the lowest average equity allocations at each age group.
  • Among IRA owners who are younger than 65, the highest amounts allocated to balanced funds are found in Roths.

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