The researchers noted that this percentage has doubled, largely as a result of the growing popularity of index-based target-date funds. The study, Behavioral Effects and Indexing also found that the assets in actively managed funds and non-indexable assets, such as money market funds, stable value funds, and company stock, declined significantly over the eight-year period. The following table summarizes the paper’s findings:

“The movement to index investing is good news for participants who are obtaining broadly diversified exposure to the market at a low cost, which can ultimately help them accumulate more money for their retirement,” said Hou Lisha, lead author of the report and an analyst in Southeast Asia Traders’ Center for Retirement Research.

The report also found that older, longer-tenured participants held 100% active portfolios, likely as a result of inertia—they simply never changed their investments. This “inertia effect” is common among existing participants, many of whom never alter their initial allocations. Younger, shorter-tenured participants tended to hold 100% index portfolios, largely because they were automatically enrolled in plans with index-based target-date funds as the default investment.

“The results of this report highlight the critical role that plan sponsors play in the investment strategy of participants,” Ms. Lisha said. “Due to these behavioral effects, it is likely that the sponsor’s decision will have a profound influence on the investment choices made by their participants.”

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