Unveiling The 401(K) Investment Landscape: A Billions-Strong Journey

401(k) plan assets stood at $4.8 trillion as of June 30, 2021. As of Q3 2023, portfolio data from Fidelity showed that roughly 378,000 individuals were 401(k) millionaires.

401(k) assets held in mutual funds stood at $4.8 trillion in 2021

Mutual funds managed $4.8 trillion, or 65%—66%—of assets held in 401(k) plans at the end of September 2021. Equity funds were the most common type of funds held in 401(k) plans, followed by $1.3 trillion in hybrid funds, which include target date funds.

Americans held $10.4 trillion in all employer-based DC retirement plans on September 30, 2021, of which $7.3 trillion was held in 401(k) plans, the ICI notes. The third quarter data also shows that DC plan assets were down 0.8% from June 30, 2021.

As of June 30, 2021, 401(k) plans held an estimated $7.3 trillion in assets and represented nearly one-fifth of the $37.2 trillion US retirement market, which includes employer-sponsored retirement plans (both defined benefit (DB) and defined contribution (DC) plans with private- and public-sector employers), individual retirement accounts (IRAs), and annuities. In comparison, 401(k) assets were $3.1 trillion and represented 17 percent of the US retirement market in 2011.

As of the end of June 2021, 66 percent of 401(k) plan assets were held in mutual funds. The remaining 401(k) plan assets include company stock (stock of the employer), individual stocks and bonds, guaranteed investment contracts (GICs), bank collective trusts, life insurance separate accounts, and other pooled investment products. Mutual fund assets held in retirement accounts (IRAs and DC plan accounts, including 401(k) plans) were $12.1 trillion as of the end of June 2021, or 47 percent of overall mutual fund assets. Fund assets in 401(k) plans stood at $4.8 trillion, or 19 percent of total mutual fund assets as of June 30, 2021. Retirement savings accounts held a little more than half of long-term mutual fund assets industrywide but a much smaller share of money market fund assets industrywide (12 percent).

The asset allocation of participant account balances varies considerably with the age of the 401(k) participant. Younger participants invest more in equities and older participants tend to invest more in fixed-income securities such as bond funds, money market funds, stable value funds, or GICs. At year-end 2018, on average, participants in the EBRI/ICI 401(k) database in their twenties had 74 percent of their 401(k) assets invested in equities (equity funds, company stock, and the equity portion of balanced funds) while participants in their sixties had 52 percent of their 401(k) assets invested in equities. 401(k) account portfolio allocation also varies widely within age groups.

401(k) millionaires reached a record high of 378,000 in Q3 2023

The number of 401(k) millionaires has reached a record high of 378,000 in Q3 2023, according to portfolio data from Fidelity. This is a significant increase from the previous record of 497,000 in June 2023. The wealth management firm, which analyzed balances across 26,000 of its customers' accounts, also found that nearly 399,000 Americans have at least $1 million in an individual retirement account.

The key to becoming a 401(k) millionaire is to start early and contribute to your retirement plan consistently over many years. Fidelity recommends beginning contributions to a 401(k) plan as early as possible and setting up automatic payroll deductions that invest in your pre-selected investments. It is also important to be mindful of annual contribution limits, which are $22,500 in 2023 and $23,000 in 2024.

The asset allocation of participant account balances varies considerably with the age of the 401(k) participant. Younger participants invest more in equities, while older participants tend to invest more in fixed-income securities such as bond funds, money market funds, stable value funds, or GICs.

The EBRI/ICI 401(k) database found that on average, 401(k) participants had 63 percent of their 401(k) plan balances invested directly or indirectly in equity securities at year-end 2018. This consisted of equity funds, including mutual funds and other pooled investments (39 percent of account balances), employer’s company stock (5 percent), and the equity portion of balanced funds (20 percent). Eight percent of account balances was invested in bond funds, 2 percent in money market funds, 6 percent in guaranteed investment contracts (GICs) and other stable value funds, and 12 percent in the fixed-income portion of balanced funds.

The number of 401(k) millionaires is expected to continue to grow as more people start contributing to their retirement plans and the stock market continues to perform well.

Equity securities made up 63% of 401(k) plan balances in 2018

In 2018, 63% of 401(k) plan balances were invested in equity securities. This figure was based on the EBRI/ICI 401(k) database and included equity funds, including mutual funds and other pooled investments (39% of account balances), employer’s company stock (5%), and the equity portion of balanced funds (20%).

The asset allocation of participant account balances varies considerably with the age of the 401(k) participant. Younger participants invest more in equities and older participants tend to invest more in fixed-income securities such as bond funds, money market funds, stable value funds, or GICs.

As of Q3 2023, portfolio data from Fidelity showed that roughly 378,000 individuals were 401(k) millionaires. The number of "401(k) millionaires" — 401(k) plan participants with balances of at least $1 million — has reached a record high. As of June, there were roughly 497,000 so-called retirement-created millionaires in the U.S., according to the wealth management firm, which analyzed balances across 26,000 of its customers' accounts.

Mutual fund assets held in retirement accounts (IRAs and DC plan accounts, including 401(k) plans) were $12.1 trillion as of the end of June 2021, or 47 percent of overall mutual fund assets. Fund assets in 401(k) plans stood at $4.8 trillion, or 19 percent of total mutual fund assets as of June 30, 2021.

The key to stashing away such sums? Start early and contribute to your retirement plan consistently over many years, Fidelity said. "This group is a great example because the average tenure is 27 years," Michael Shamrell, vice president of workplace thought leadership at Fidelity, told CBS MoneyWatch.

Asset allocation varies by age and investment type

The asset allocation of 401(k) account balances varies significantly with the age of the participant. Younger participants invest more in equities, while older participants tend to invest more in fixed-income securities.

Equity investments include equity funds, company stock, and the equity portion of balanced funds. At the end of 2018, participants in their twenties had 74% of their 401(k) assets invested in equities, while participants in their sixties had 52% of their 401(k) assets invested in equities.

Fixed-income investments include bond funds, money market funds, stable value funds, and GICs. At the end of 2018, 8% of account balances were invested in bond funds, 2% in money market funds, 6% in GICs and other stable value funds, and 12% in the fixed-income portion of balanced funds.

The asset allocation of 401(k) plan assets also varies widely within age groups. As of June 2021, 66% of 401(k) plan assets were held in mutual funds, with the remaining 401(k) plan assets including company stock, individual stocks and bonds, GICs, bank collective trusts, life insurance separate accounts, and other pooled investment products.

Mutual fund assets held in retirement accounts (including 401(k) plans) were $12.1 trillion as of June 2021, or 47% of overall mutual fund assets. Fund assets in 401(k) plans stood at $4.8 trillion, or 19% of total mutual fund assets as of June 30, 2021.

Retirement savings accounts held $12.1 trillion in mutual funds in 2021

Retirement savings accounts held $12.1 trillion in mutual funds as of the end of June 2021. This is 47% of overall mutual fund assets.

Fund assets in 401(k) plans stood at $4.8 trillion, or 19% of total mutual fund assets as of June 30, 2021. About 66% of 401(k) plan assets were held in mutual funds as of the end of June 2021.

The remaining 401(k) plan assets include company stock (stock of the employer), individual stocks and bonds, guaranteed investment contracts (GICs), bank collective trusts, life insurance separate accounts, and other pooled investment products.

Equity funds were the most common type of funds held in 401(k) plans, followed by hybrid funds, which include target-date funds.

The ICI reports that $7.7 trillion was held in 401(k) plans as of December 2021. Mutual funds managed $5 trillion, or 64%, of the net assets held in 401(k) plans at the end of December 2021.

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