New data from Towers Watson shows many Americans' defined contribution plans suffer risky allocations when it comes to equities.
An all-or-nothing approach to stocks was seen in nearly 37 percent of the plans Towers reviewed: 22 percent were completely allocated to stocks, and 15 percent held no equity investments at all.
The extent of "extreme" investing has declined over the 10-year period beginning in 2004, but remains dangerously high, with some of the most troubling trends emerging in the retirement age demographic.
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In 2013, more than 18 percent of investors age 65 to 74 had a 401(k) invested only in stocks, about equal to the percent of older investors who had no stock investments (18.6 percent).
The wealthiest households were most aggressively invested in equities. About 45 percent of households with a net worth of $5 million or more allocated at least 75 percent of their defined contribution portfolio to stocks; 29 percent had plans completely allocated to stocks.
About 32 percent of households with less than $50,000 in net worth allocated at least three quarters of their portfolio to stocks.
In some cases, participants having other retirement savings vehicles, like a defined benefit plan, might explain some instances of extreme stock allocation in 401(k) plans.
But almost 22 percent of households without a defined benefit plan are 100 percent invested in stocks in the their 401(k) plan.
How respondents described their risk tolerance also revealed significant incongruence with how they allocate their 401(k)s.
About 31 percent who said they have an average risk tolerance hold 75 percent or more their portfolio in stocks, and 25 percent of those who said they were not willing to assume any risk had 75 percent of their portfolio dedicated to stocks.
For those who described their investment horizon as 10 years or more, about 40 percent had 75 percent or more of their portfolios in stocks.
A significant number of households that described their planning horizon as extending to only the "next few months" were over weighted in stocks, which to Towers research calls "puzzling."
Nearly 30 percent with the shortest horizon had more than 75 percent of assets in stocks, with more than 21 percent holding everything in equities
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
