With the S&P 500 posting its best November ever, 401k investors somewhat reversed a continuing trend towards fixed income seen for some time, and resumed trading into equities, according to the Alight Solutions 401(k) Index.
Following a contentious election and despite the ongoing COVID crisis, there were nine days in November where net trades went from fixed income to equities—which Alight notes is a sharp contrast from October, which had no such days.
Overall, investors had 66.9% of balances in equities at the end of November, the highest value since January 2020 before the COVID-19 pandemic.
On average, 0.024% of 401k balances were traded daily and 11 of 20 days favored fixed-income funds. There were three above-normal days of trading activity.
Trading inflows mainly went to bond, stable value, and target-date funds while outflows were primarily from company stock, large U.S. equity, and balanced funds.
After reflecting market movements and trading activity, average asset allocation in equities increased from 65.4% in October to 66.9% in November. New contributions to equities increased from 67.2% in October to 67.3% in November.
What it means
A “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percent of total 401k 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 two 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.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
