A bull market extension in 2021 meant better behavior on the part of retirement plan participants. 401k investors were infrequent traders and mostly content to watch their balances grow, according to the Alight Solutions 401(k) Index.
The Illinois-based Alight found net trading activity for the year was 0.53% of balances, the lowest on record for the 401(k) Index, which started in 1997 and well below 2020’s value of 3.51%. There were 3 days of above-normal1 activity, a stark contrast to the 47 seen in 2020 when the market was much more volatile.
When trades did occur, they tended to be people in profit-taking mode, moving money from large-cap U.S. equities and target-date funds into more conservative investments like stable value and bond funds.
401k investors increased their equity exposure in 2021 from 67.7% at the beginning of the year to 70.7% at the end of the year. This is primarily due to 3 factors: light trading activity during the year, new contributions overwhelmingly favoring equities, and near-record highs in equity markets. The last time a year closed with an equity percentage over 70% was 2000 (73%).
401k trading defined
According to Alight, a “normal” level of relative transfer activity is when the net daily movement of participants’ balances, as a percent of total 401(k) balances within the Alight Solutions 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.
A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and 2 times the average daily net activity of the preceding 12 months.
Target-date funds also include the amounts in target risk funds. The amount in the target risk funds is less than 10% of the total.