Most IRA Owners Have 'Extreme' Allocations

Three in five Americans are using an "extreme" investment allocation for their retirement savings, according to a new study.

Three in five Americans are using an “extreme” investment allocation for their retirement savings, according to a new study.

The Employee Benefit Research Institute, looked at individual retirement account owners using data from 2012. The study defined “extreme” allocations as those with less than 10% or more than 90% of their assets in a particular investment category. That description fit nearly 60% of IRA owners, according to EBRI.

For instance, 23.7% had less than 10% of their assets in equities. Meanwhile, 35.5% had more than 90% of their assets in equities.

Nearly 2 in 10 (18.5%) had more than 90% of their assets in bonds and money.

The study was based on data from 23.5 million accounts, with total assets of $2.09 trillion. The study also has a longitudinal component, dating back to 2010, which shows equity allocations have remained fairly steady. IRAs generally make up about one-quarter of total retirement savings in the country.

Overall, 52.1% of assets were in equities. Roth IRA owners were most likely to have more than 90% of their assets invested in equities. However, the older the IRA owner, the less likely they were to let equities dominate their IRA allocations.

Not surprisingly, older IRA owners, particularly those over age 85, tended to focus much more on bonds or money funds. Those with traditional IRAs also had lower equities allocations, on average.

Equities were the largest allocation category overall, followed by bonds (15.1%), money funds (12.8%, and balanced funds (9.5%). Balanced funds includes balanced funds, lifestyle and life cycle funds, and target date funds. The remaining 10.6% were placed in “other” assets, such as real estate or fixed or variable annuities.

The study also looked at gender. It found male and female investors had roughly the same level of “extreme” allocations, though men tended to invest more in “other” assets, while women had a higher usage of balanced funds.