Since the U.S. Labor Department's decision to allow employers touse target-date funds as a qualified default investment alternativein 401(k) plans, use of the funds in retirement plans is rapidlyincreasing, the Employee Benefit Research Institute writes. At theend of 2008, nearly 7 percent of 401(k) assets were invested inthese funds. They were most popular among workers in their 20s,with 15 percent of young workers opting for the "all-in-one"investment option, while only 6 percent of workers in their 60schose the funds.

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EBRI reports, however, that over half of the workers who optedfor target-date funds in 2007, also selected other funds in theiremployer-sponsored retirement plans. Most of these mixed-fundparticipants are middle-income workers. EBRI warns thatparticipants who lack financial literacy may end up with a"potentially inferior portfolio in terms of risk/return tradeofffrom more assets allocated to some sectors than the designers ofthe target date funds had planned."

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Participants who invest less than half of their assets intarget-date funds are more likely to choose two or more.Furthermore, they are likely to mix aggressive funds withtarget-date funds; equity funds make up an average 48 percent ofaccount balances excluding target-date funds, compared with GIC andstable value funds which account for only 29 percent of accountbalances.

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