401k contributions are long-term investments with time horizons in the decades, so daily, weekly, monthly, and even yearly volatility shouldn’t affect participant behavior (keyword, shouldn’t).
“The news comes after ‘active but cautious’ participants experienced above-normal trading activity last month.”
While the advent of target-date funds and similar innovations have kept workers on course and invested during recent market shocks, the strain might finally be getting to them, especially those close to retirement with a heightened sequence of return risk.
Alight’s 401(k) Index, which tracks the 401k-trading activity of over 2 million people with more than $200 billion in collective assets, had a high day Monday, with 2.39 times average activity. Little surprise, the direction was out of equities and into fixed income.
The news comes after “active but cautious” participants experienced 12 of the 21 days with above-normal trading activity last month. All but three days in the month saw net trading activity moving money from equities to fixed income.
On average, the Illinois-based Alight found that 0.018% of 401k balances were traded daily, and 18 of 21 days favored fixed-income funds in May. Trading inflows mainly went to stable value, money market, and self-directed window funds.
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.
