Most Popular Investment Types in 401k and Retirement Accounts (2025 Survey & Stats)

Retirement investors are sticking with the basics in 2025 — and the data backs it up. According to the latest surveys from Vanguard, Fidelity, Morningstar, and others, most 401k participants continue to favor target-date funds and low-cost index options. At the same time, more plans are simplifying their menus, trimming expensive funds, and nudging savers toward better habits like auto-escalation.

This article breaks down the key findings, what they mean for both individual savers and plan sponsors, and how to make the most of this year’s retirement trends, whether you’re just getting started or fine-tuning an existing strategy.

📌 Also Read: The Average Stock Market Returns Over the Past 10, 20, 30, and 40 Years

What 401k Investors Are Holding in 2025

Even with the ups and downs in the 2024 market, most U.S. workers still keep most of their retirement savings in stocks. Here’s an overview of how others allocate their 401k investments to help you evaluate your own mix.

Equity, Bond, and Cash Allocations in 401k Plans

Recent data from major plan providers show a consistent breakdown of how 401k assets are invested:

Asset Type	Share of Total 401k Assets (2024 data reported in 2025)	Why Investors Choose It
Stocks (Equity funds + stock portion in target-date funds)	73.8 percent (Source: Callan DC Index, Q4 2024)	Often used as a long-term growth driver. Most plans automatically place new savers in stock-heavy target-date funds.
Bond funds	Around 6 percent (Source: Vanguard)	Helps reduce volatility. Common among those nearing retirement who want more stability.
Cash / stable-value	Around 5 percent (Source: Vanguard)	Used for short-term needs or to reduce risk. Too much in this category can limit long-term growth.

📝 Quick Check: If you’re more than 10 years from retirement and your stock allocation is well below 70 percent, you could be giving up long-term growth potential. If it’s above 70 percent and you’re within five years of retirement, you might be taking on more risk than needed.

Typical Investment Mix by Age and Risk Tolerance

Target-date funds and automated portfolios generally follow a common pattern based on age. Here’s how equity exposure typically shifts as investors get closer to retirement:

Age Group	Typical Stock Allocation	Typical Bond + Cash Allocation
Under 35	Around 88 percent	12 percent safety assets
Ages 45–54	Around 73 percent	27 percent safety assets
Age 65+	Around 50 percent	50 percent safety assets

Source: How America Saves 2025 | Vanguard

What this means for you:

✅ Match your risk to your timeline. These standard paths assume retirement around age 65 with withdrawals spread over time. If you plan to retire earlier or need a large amount at once, you may need to reduce stock exposure sooner.

✅ Use the “sleep test.” If a 15 percent drop in the market would cause serious stress, it may help to shift some of your portfolio into bonds or consider a more conservative target-date fund.

✅ Watch fees before you make changes. Many broad index funds charge less than 0.05 percent. Switching to a lower-cost option could boost long-term results without changing your investment mix.

These benchmarks can help you check two things:

Target-Date and Index Funds Remain the Top Picks

Target-date and index funds remain the top picks in 2025, with employers steering workers toward these low-cost, all-in-one options — and most people stay with them once enrolled. Recent reports from Vanguard, J.P. Morgan, Bankrate, and Morningstar highlight why these funds remain the foundation of many retirement portfolios.

Why Most Investors Start and Stay With These Funds

Most 401k plans automatically enroll new participants into target-date funds (TDFs). In Vanguard-managed plans, 59 percent of all participants now hold a single TDF. Nearly every plan that offers automatic enrollment uses a TDF as the default.

Plan sponsors favor target-date funds as a Qualified Default Investment Alternative (QDIA). Among those using a QDIA, 94 percent choose a TDF series. These options meet fiduciary safe-harbor rules and help savers avoid decision fatigue by simplifying the menu.

Once enrolled, most people stick with the plan’s default investment. This is common behavior. TDFs follow a glide path that adjusts risk automatically, so there’s little need to make manual changes.

Index funds are also a popular option for do-it-yourself investors. According to Bankrate, many financial guides still recommend switching to an index fund if the fund you’re in charges more than 0.50 percent. Index funds often offer broad market exposure at a much lower cost.

Why These Funds Appeal: Low Cost, Less Effort

✅ Fees continue to fall. Morningstar’s 2025 report found that passive U.S. equity funds now have an average expense ratio of just 0.08 percent. In comparison, active funds average around 0.60 percent. Lower costs can lead to better long-term outcomes by reducing annual drag on returns.

✅ Built-in diversification and rebalancing. A single target-date or index fund typically spreads your investment across hundreds, or even thousands, of stocks and bonds. These funds adjust automatically, which means less ongoing maintenance for you.

✅ Clearer expectations over time. Target-date funds reduce risk gradually as you approach retirement. Index funds follow transparent benchmarks. Both make it easier to monitor your progress without needing to actively manage your portfolio.

✅ Regulatory confidence. TDF glide paths and low-cost index funds align with Department of Labor guidelines. This gives plan sponsors legal protection and helps participants stay on a path backed by policy standards.

📝 Tip: If you’re unsure where to start or don’t want to actively manage your portfolio, a low-cost target-date or index fund could be a practical default. Just make sure the fund’s glide path or allocation still fits your goals.

How to Choose the Right Fund Mix in Your 401k

The investment menu in most 401k plans includes a mix of stock funds, bond funds, target-date options, and sometimes a stable-value fund. To avoid decision fatigue, focus on a few simple steps to narrow your list, minimize fees, and build a mix that fits your goals.

Step 1: Review Your 401k Fund Lineup

Start by checking your fund lineup or recent 401k statement. Make a list of each fund’s category (such as equity, bond, or target-date) along with its 10-year return and expense ratio. According to Bankrate’s 2025 guide, these two figures are key when filtering your choices.

Step 2: Match Your Mix to Your Time Horizon

Think about when you plan to retire.

Your investment mix should align with your expected retirement timeline and your comfort with risk.

Step 3: Diversify Across Asset Classes

Avoid holding several funds that track the same part of the market. This could lead to unbalanced exposure. Instead, aim for a basic, diversified mix like:

✅ One U.S. equity index fund
✅ One international equity fund
✅ One core bond fund

This approach is often more effective than spreading across too many overlapping funds.

Step 4: Rebalance Once a Year

As markets shift, your portfolio will naturally drift from its original allocation. Set a calendar reminder to rebalance annually. This means adjusting your investments back to your target mix, especially if stocks have outperformed bonds. Rebalancing helps control risk without needing to predict market movements.

Watch Out for Fees and Hidden Costs

✅ Stick to low-cost options

Look for funds with expense ratios under 0.50 percent. Many index funds charge under 0.10 percent.

✅ Check for hidden costs

Review the fund’s prospectus for 12b-1 or revenue-sharing fees, which can add 0.25 to 0.75 percent yearly. These are disclosed by law, but you need to look closely.

✅ Know how fees affect outcomes

Even a 0.50 percent plan fee can reduce a portfolio by six figures over time. Investopedia cites a 2025 example where a $100,000 portfolio loses $157,000 over 35 years with just that one fee. 

When to Consider Managed Accounts

Not everyone wants to handle portfolio decisions on their own. A managed-account service could be worth considering if:

✅ Your plan offers managed accounts for 0.10 percent or less. According to planadviser, 70 percent of plan sponsors would offer this service if fees were that low.

✅ Your situation is more complex. Managed accounts can be helpful if you have outside assets, multiple income sources, or a non-traditional retirement plan.

✅ You’re nearing retirement. Some plans are testing hybrid defaults: TDFs for younger workers and managed accounts for those 50 and up who want a hands-off but tailored approach.

📝 Tip: If your managed account costs more than 0.30 percent, ask your HR team whether lower-cost options (like robo-advisors) are available. Personalized advice shouldn’t come at the expense of performance.

New Investment Options in 2025

Stocks, bonds, and target-date funds continue to anchor most 401k menus. But in 2025, more plans are starting to explore alternative investments, particularly private-credit funds, real-asset strategies, and select retirement-income products. SECURE 2.0 updates are also accelerating changes, making it easier for employers to include annuities in plan lineups.

What’s Changing in the 401k Landscape

Trend	What’s Happening
Private credit is gaining traction	Assets in interval funds, tender-offer funds, and non-traded business development companies (BDCs) reached $344 billion in 2024—a 60 percent jump since 2022. Private credit now accounts for the largest share, totaling $188 billion. (Source: Morningstar)
Real assets are being considered	Non-traded REITs and infrastructure funds are becoming more visible, especially as plan sponsors look for additional income sources. More than 20 percent of sponsors are evaluating real-asset options for future menus. (Source: Mercer Advisors)
ESG momentum is slowing	Only 5 percent of plan sponsors list ESG refinement as a 2025 priority. After the American Airlines ESG lawsuit, nearly 30 percent of those offering ESG funds are reassessing their inclusion. (Source: NAPA Net, PSCA)

These alternative assets may offer diversification and potential inflation protection, but they come with different risks and cost structures than traditional index funds.

SECURE 2.0: Rules Shaping Plan Design

Update	What It Means
Auto-enrollment for new plans (2025 and beyond)	Plans established in 2025 or later must automatically enroll employees at 3–10 percent of pay and apply annual auto-escalations. This raises the stakes in selecting a default investment that suits most participants. (Source: Employee Fiduciary)
Lifetime income safe harbor rule	Starting September 2, 2025, plans can use a new checklist from the Department of Labor to vet annuity providers. This guidance reduces legal uncertainty when including annuities or income-oriented collective investment trusts (CITs). (Source: Federal Register)

With clearer legal protections and the push for auto-enrollment, income-focused options like annuities may start appearing more frequently alongside target-date funds.

What to Know Before Adding Niche Investments

Due Diligence Item	Why It Matters	Quick Check
Liquidity terms	Many semiliquid funds limit redemptions to 5–10 percent of assets per quarter.	Can participants access funds if they change jobs?
All-in fees	Fees are often 2–3x higher than traditional mutual funds and may include borrowing costs.	Compare net-of-fee returns against low-cost index funds. (Source: Morningstar)
Valuation transparency	Assets are not priced daily—this can lead to pricing lags or mismatches during market volatility.	Check how valuations are handled in the fund prospectus.
Fiduciary documentation	ESG and alternative options are under increased scrutiny from courts and regulators.	Maintain a written policy showing how the investment was selected and is monitored.
Participant education	Without context, complex products can confuse participants and increase risk.	Provide plain-language explanations before adding new funds to the plan.

Tips for Plan Sponsors and Participants

New options don’t automatically mean better choices. Alternatives like private-credit and real-asset funds are becoming more accessible, but they require extra evaluation. Treat SECURE 2.0’s new rules as a chance to modernize responsibly, not as a shortcut around thoughtful due diligence.

Quick Checklist for Savers and Plan Sponsors

Use this two-minute audit to catch the most impactful wins—then take action on the ones that apply to you.

For Individual Savers

✅ Contribution Rate

Are you contributing at least 12–15 percent of your pay (including any employer match)?

✅ Diversification

Avoid overconcentration in any one fund.

✅ Fee Awareness

High costs can erode long-term growth.

For Plan Sponsors and Committees

✅ Benchmark plan costs annually

Excessive-fee lawsuits rose 35 percent in 2024, and courts now expect documentation of a routine fee review process. (Source: planadviser)

✅ Optimize auto features toward 12–15 percent

Plans that combine automatic enrollment with 1 percent annual auto-escalation often help participants save 20–30 percent more after three years. (Source: Vanguard)

✅ Include index funds in every major asset class

This provides cost-effective options and supports fiduciary prudence.

✅ Document any niche investments

If adding private credit, ESG funds, or similar options, maintain written due diligence covering:

Simple Tweaks That Add Up Over Time

Saver Move	Potential Long-Run Boost
Turn on auto-escalation or increase your rate by 1 percent today	Adds ≈8 percent to your balance after 20 years (at 6 percent growth)
Switch from a 0.80 percent active fund to a 0.05 percent index fund	Could save $95,000 over 30 years on a $250/month contribution
Consolidate old 401(k)s into a lower-cost current plan	Lowers admin fees and simplifies rebalancing

📝 Note: Even small annual adjustments — like bumping up contributions or reviewing fund choices — can make a meaningful difference over the long term. Set a yearly reminder to revisit your plan.

Final Take: What the 2025 Trends Mean for Your 401k

The 401k landscape continues to shift. In 2025, plans are leaning more toward streamlined menus, lower-cost index options, and tools that automate savings. But even with new features and fund types, your strategy still comes down to a few key choices.

Focus on three areas:

Remember, a consistent strategy matters more than chasing trends. Keep your plan simple, efficient, and aligned with your goals.

📌 Want to go deeper? Browse our other retirement planning articles to explore strategies tailored to your career and savings journey.

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