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"Lost generation" of stock investors? Not in DC, Vanguard says

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There's plenty of evidence that young investors have written off equities as an investment, after being hammered by two recessions in the last 10 years. In a new report today, Vanguard says it's seen a big exception to that trend in the defined contribution plans that the company administers.

The average equity allocation of the youngest investors in the plans, at age 20, rose from 40.7 percent in 2003 to 84.7 percent in 2010. The pattern also generally held for investors younger than 30, Vanguard says.

Are Gen Y investors consciously taking more risk in their 401(k) plans here? Nope. The reason is simple: younger people are benefiting from the growing use of programs that automatically enroll them into DC retirement plans when they are hired by employers, Vanguard says. They're also finding themselves in target-date funds that carry a larger allocation of equities for younger employees who, from a traditional investment view, can assume more risk because they have a longer investment horizon.

"At least when it comes to DC plans, there is no evidence of a 'lost generation' of younger investors," says the Vanguard report, Generations: Key Drivers of Investor Behavior. "Our findings also suggest that as more and more plans enter the 'automation age,' equity risk-taking by participants will be increasingly the result of plan design and menu choices, and less a function of participant reaction to current market conditions."

Which raises an interesting question: Are investors better off when they think less about what they're doing?

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