Investors in traditional individual retirement accounts (IRAs) are, for the most part, investing age appropriately, according to research results released today by the Investment Company Institute.

Meanwhile, younger investors tend to have a bigger chunk of their accounts earmarked in equity investments compared to older investors, who are strongly tilted toward bond investments, the report said.

This is the ICI's third report based on a database released in July 2010 that collects account-level data on more than 10 million IRAs.

Based upon a joint project by ICI and the Securities Industry and Financial Markets Association, the IRA Investor Profile: Traditional IRA Investors' Asset Allocation, 2007 and 2008 closely examines both investor allocations overall as well as how traditional IRA owners are investing across age and income groups.

ICI officials say the report findings provide a framework for considering policy issues surrounding the use of this retirement savings vehicle.

"This research reveals that in traditional IRAs, the pattern of holdings tended to vary with investor age, typically as expected across the life cycle," said Sarah Holden, senior director of retirement and investor research at ICI. "This age-appropriate investing pattern is similar to what our 401(k) research has consistently shown with respect to plan participants' investments in their 401(k) accounts."

Holden says report data indicates discernable investment differences between the two age groups.

"Traditional IRA investors, who are somewhat older on average, tended to have higher shares of their accounts in fixed-income investments," Holden said. "And target date funds were a higher share of 401(k) assets compared with traditional IRAs, reflecting in part their role as a default investment in the 401(k) plan space."

According to ICI research, the largest portion of traditional IRA assets was invested in individual stocks and equity funds, both in aggregate and across investor age or income groups at year-end 2007 and year-end 2008.

However, in 2008, traditional IRA assets invested in individual stocks and equity funds (including equity mutual funds, equity exchange-traded funds, and equity closed-end funds) fell to 44.3% from 57.8%, largely as the result of negative stock market returns in 2008.

ICI's report also finds that at year-end 2008:

Hybrid funds, including target date funds, represented 12.9% of investors' assets in traditional IRAs, on average, down from 13.6% at year-end 2007.

Bonds and bond funds had climbed to 17.5%, from 13.5% of traditional IRA assets at year-end 2007.

Money market funds had risen 8.5 percentage points, to 23.0% of traditional IRA assets, from 14.5% at year-end 2007.

More broadly, equity holdings -- equities, equity funds, the equity portion of target date funds and the equity portion of other hybrid funds -- represented 51.7% of traditional IRA assets at year-end 2008, down from nearly two-thirds (66.3%) of traditional IRA assets at year-end 2007.

Research findings also show that the youngest traditional IRA investors (25-to-29 years old) were more heavily invested in money market holdings than any other age group at the end of 2007.

ICI officials say that is likely attributable to several factors: A preponderance of small balances, which have a higher tendency to be invested in money market funds; and the possibility that some investors may have shorter-term goals for the money in their traditional IRAs.

The pattern of investments among traditional IRA investors was broadly consistent with the patterns observed in 401(k) plans, in aggregate and by investor age. Equities and equity funds represented the largest share of both traditional IRAs and 401(k) plan assets, in aggregate and by investor age.

In addition, whether looking at traditional IRAs or 401(k) plans, bonds and bond funds represented higher shares of account assets among older investors compared to younger investors.

However, a number of differences were observed in investing patterns in traditional IRAs compared with 401(k) plans:

In total, traditional IRAs had a higher allocation to bonds and bond funds than 401(k) plans, in part because traditional IRA investors tend to be older compared with 401(k) plan participants.

Money market funds had higher shares in traditional IRAs in total and across all age groups, reflecting in part their use as a default investment for small rollovers and perhaps traditional IRA investors' higher demand for liquidity.

Target-date funds represented a higher share of 401(k) plan assets in total, likely reflecting their use as default investments in many plans.