Individuals participating in 401(k) and other defined contribution plans generally invest in an average of 5.3 funds in 2011. This compares to investing in only 2.7 plans in 1996. In fact, in 2000 the average number of funds was 3.4 and as recently as 2005, participants were investing in 4.6 investment funds.
Why the increase? One simple reason is that the number of funds offered increased substantially. Today the average number of funds included in a 401(k) plan is 19.4 compared to only 6.3 in 1996.
Additionally, investment education is available to assist participants as they make investment decisions. In 1996 employee education was a relatively new offering. It was unclear when education was crossing the line and becoming investment advice. While some of the legal issues have become somewhat more understandable (arguably not always clear), the amount of guidance, information and even advice has increased substantially.
Plan participants have access to information from employee meetings, hard copy materials and online at the provider’s website. Today many websites provide tools that allow participants to answer questions regarding their needs, lifestyle and risk tolerance and gain an understanding of the funds that would most effectively meet their needs.
The challenge for today’s investors is having too much access and too many funds available. It is possible that the number of funds that participants choose will begin to moderate in future years as individuals realize that their needs can be met with just a handful of funds.