March Madness applied to trading as well, and it was another busy month for 401(k) investors, according to the Alight Solutions 401(k) Index. There were five above-normal trading days in the month, often occurring when the market fell.
Despite the market rally for the month, investors continued to move money from equities to fixed income.
On average, 0.014% of 401(k) balances were traded daily, and 15 of 23 days favored fixed-income funds. Trading inflows overwhelmingly went to stable value funds, and outflows were primarily from target date, company stock, and mid-U.S. equity funds.
After reflecting market movements and trading activity, average asset allocation in equities increased from 69.5% in February to 69.9% in March. New contributions to equities increased from 69.5% in February to 69.7% in March.
First-quarter observations
As for the entire first quarter, there were 16 above-normal trading days—a stark contrast to the three above-normal days seen in 2021. Net transfers as a percentage of starting balances were 0.46%, nearly equal to the percentage seen in the prior twelve months (0.53%). Net trading activity significantly favored fixed income.
In the first quarter, 42 out of 62 trading days had net trading dollars moving from equities to fixed income. The highest trading days generally occurred on days when stocks fell.
Trading defined
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 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.
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.
