Fear and uncertainty driven by factors here at home and abroad combined for a more volatile January, with daily 401k trading activity nearly doubled from December.
The Alight Solutions 401k Index reported five days of above-normal activity during the month—three more than the combined total of the last four months of 2019.
While 401k trading activity followed volatility seen in the broader market, activity overall on a percentage basis remained low.
On average, 0.021% of 401k balances were traded daily and 12 of 21 days favored fixed-income funds.
Trading inflows mainly went to bond, target date and international equity funds, while outflows were primarily from stable value, large U.S. equity and small U.S. equity funds.
After reflecting market movements and trading activity, average asset allocation in equities decreased from 68.1% in December to 67.7% in January, according to Alight. New contributions to equities increased from 67.4% in December to 68% in January.
January was a volatile month for investors. U.S. bonds generated a positive return of 1.9%. U.S. large-cap equities were flat, international equities dropped 2.7% and U.S. small-cap fell 3.2%.
What it means
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.
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.
