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401(k) Investments Keep Young Workers' Money In The Stock Market Despite Poor Performance

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People born in the 1980s are more into the stock market than one might think, according to one new study. While analysts have worried that the volatile market of the last decade, with the terrible downturns in 2000 and 2008, would sour Gen Y on stocks, the opposite had occurred. The number of participants in their 20s who had 80 percent or more of their 401(k) money in stocks grew from 55.3 percent to more than 60 percent between 2000 and 2010, according to the study, which was conducted by the Investment Company Institute and Employee Benefit Research Institute and looked at the accounts of more than 23 million 401(k) participants.

It's not just those in their 20s who have said yes in greater numbers to equities over the past decade. The survey also found that as of 2010, more Americans overall had some money in the stock market as part of their 401(k) retirement account than they did in 2000.

How could something that's performed so terribly stay so popular? Blame the 401(k) itself. Starting in 2006 with the Pension Protection Act, companies had more incentive to auto-enroll employees in these retirement funds. The result: more money in the market. What's more, auto enrollments typically move money into target-date funds that weigh younger investors more heavily in stocks.

"Growing use of target-date funds appears to be helping to keep younger 401(k) participated in balanced portfolios, with equity exposure to help their assets grow over the long term," Sarah Holden, senior director of retirement and investor research for ICI, said in a statement. "While our surveys and others have shown that investors are less willing to take on stock market risk, 401(k) plan features are countering that trend for plan participants."

Homeownership, another long-term investment for individuals thinking about ways to save for retirement, has also been on the decline. Since the overinflated high of around 70 percent in the mid-2000s, the home ownership rate has been steadily declining, and is sitting around 66 percent today. Instead of keeping one's savings in one's home, investors have to count on other vehicles, like the markets.

The study also showed that one in four people had 80 percent or more of their money tied up in stocks. While that percentage has declined from 54.1 percent since 2000, it is still a significant portion of investors. Meanwhile, the group holding between 60 and 80 percent in stocks grew more than 10 percent to nearly a quarter of the participants surveyed.

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