You can almost set your watch to it. Despite rebounding equity markets in October, 401(k) investors continued to act exactly as expected—meaning contrary to their own best interests.
According to the Aon Hewitt 401(k) Index, October was a slow month for trades in defined contribution plans as participants transferred an average of 0.018% of total balances per day—the lowest monthly trading level in three years since June 2014.
However, when participants made trades, they favored fixed income over equities, with 77 percent of the trading days showing more inflows to fixed income. This despite the aforementioned equity market rebound. There were two days of above-normal trading activity for the month.
When combining contributions, trades, and market activity, participants’ overall allocation to equities increased to 65.5% at the end of October up from 64.6% at the end of September. Future contributions to equities decreased marginally to 66.0% from 66.4% in September.
Market Observations
October market returns were positive. U.S. Small-Cap equities (represented by the Russell 2000 Index), U.S. Large-Cap equities (represented by the S&P 500 Index), and International equities (represented by the MSCI ACWI ex-US Index) all had positive returns.
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.
