View from the Observation Deck

1. Investors in 401(k) and other defined contribution plans appear to have tempered some of their risk exposure since the start of 2007.
2. As we pointed out in our blog post from 6/6/12 ("Retail Investors Give Stocks A No Confidence Vote"), two deep bear markets in a decade and one "Flash Crash" on 5/6/10 have made some retail investors skittish.
3. The percentage of defined contribution plan assets invested in domestic equity funds declined from 55% in Q1'07 to 45% in Q1'12 (see chart). In 1992, that figure was 72%.
4. We know that investors have consciously reduced exposure to domestic equities because the S&P 500 posted a cumulative total return of 10.5% over those 60 months. So the drop in total assets wasn't performance-related.
5. Hybrid funds, which tend to be comprised primarily of domestic and foreign stocks and bonds, but can extend into such areas as commodities and REITs, saw their share of the pie rise from 15% in Q1'07 to 22% in Q1'12.
6. One of the more popular hybrid funds for investors in recent years has been target-date funds. These funds adjust their asset mix to achieve a specific objective by a set date, such as the start of one's retirement.
7. In 2010, target-date fund assets accounted for 12.5% of all holdings in employer-sponsored defined-contribution retirement accounts. They are expected to account for 48% by 2020, according to Kiplinger.
8. Plans are shifting away from the more traditional balanced funds to target-date funds for their qualified default investment alternative (QDIA).