We know we’re not supposed to care about month-to-month 401k trading activity, as long-term time horizons require a level of short-term detachment to avoid overcorrections and the resulting damage. But every once in a while, something interesting happens.
May was not one of those times.
It was a slow month for trading activity in defined contribution plans, according to the Alight Solutions 401k Index, with one day of above-normal trading activity for the month.
However, when 401k participants made trades, they tended to favor fixed income funds over equities, with 13 of 22 days favoring fixed income.
On average, 0.014 percent of balances were traded daily.
Trading inflows for the month of May mainly went to stable value, small U.S. equity, and bond funds. Outflows were primarily (and surprisingly) from target date, emerging markets, and company stock funds.
At the end of May, 68.5 percent of balances were invested in equities, up slightly from 68.4 percent in April. Fully 68 percent of new contributions were invested in equities at the end of May, down from 68.2 percent in April.
Overall, domestic market returns were positive last month, with small-cap U.S. equities (represented by the Russell 2000 Index) up over 6 percent and large U.S. equities (represented by the S&P 500 Index) over 2 percent. U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) followed suit, gaining close to 1 percent. International equities, however, fell over 2 percent in the last month.
For context, Alight notes that 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 401k 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.
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.
