Ongoing stock market volatility and recent recession fears have some 401(k) participants headed for safety in May.
“It was a far cry from the previous month when 401(k) investors remained calm among global unrest.”
Calling them “active but cautious,” the Alight 401(k) Index found that 12 of the 21 days had above-normal trading activity, but no day exceeded three times the average. All but three days in the month saw net trading activity moving money from equities to fixed income.
On average, 0.018% of 401(k) balances were traded daily, and 18 of 21 days favored fixed-income funds. Trading inflows mainly went to stable value, money market, and self-directed window funds.
Outflows were primarily from target-date, large U.S. equity and bond funds.
After reflecting on market movements and trading activity, average asset allocation in equities decreased from 69.1% in April to 68.8% in May, and new contributions to equities decreased from 69.5% in April to 69.0% in May.
It was a far cry from the previous month when 401(k) investors remained calm among global unrest. However, net transfers in April were up slightly compared to March (.10% vs. .09%) as investors again moved money out of equities and into fixed income.
Alight defines a “normal” level of relative transfer activity as 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.
