When it comes to saving money, the members of Generation Z could teach a lesson or two to some of their elders.
Members of Generation Z — the oldest of whom are currently 26 years old — excel when it comes to saving for retirement, as we noted in “Which Generation Has the Most Super Savers?”
As we wrote at the time:
“Members of Generation Z have the most super savers of any generation, with more than 6 in 10 qualifying for the title.”
Super savers are those who participate in a 401(k) or similar retirement plan and earmark more than 10% of their salary to such an account.
So we already know that Generation Z saves a lot of cash. Now, we’re learning exactly how they invest that money.
Recently, Fidelity Investments released its fourth-quarter and year-end 2022 analysis of the state of the more than 43.4 million IRA, 401(k) and 403(b) retirement accounts on the company’s platform.
The analysis found that among members of Generation Z who have 401(k) accounts with Fidelity, 84% have all of their savings in a target-date fund.
As we have previously explained, target-date funds are designed to lower your investment risk as you age:
“As your target retirement date nears, the fund asset allocation automatically changes such that lower-risk investments like bonds comprise an increasingly larger portion of the fund while higher-risk investments like stocks comprise an increasingly smaller portion.”
Target-date funds are not always the best choice for every investor, but they can be a good option for those who simply want to take a “set it and forget it” approach to investing. These are likely folks who want to spend more of their lives focusing on things other than making money.
If you are interested in target funds, be sure to read about the “5 Questions to Ask When Picking a Target-Date Fund.”
But before you commit to target-date funds, make sure you understand some of their potential drawbacks. For more, check out: