Despite the relatively small number of actual cases so far, the potential damage from a coronavirus pandemic has investors reacting, and 401k participants aren’t immune.
Steep market selloffs overall continued Tuesday after a wild Monday that saw a 1,000-plus point paring of the Dow, the third-largest single-day drop in market history.
All three major markets lost greater than 3% of their value, with the DJIA off by 3.56%, the S&P 500 down 3.35% and the Nasdaq down 3.71% to start the week.
Tuesday initially saw more of the same, the Dow down 371 points, or 1.3%, to 27589 by midday, an uptick after being down as much as 403 points earlier. The S&P 500 was off 1.2% and the Nasdaq at 1%.
401k flight to fixed income
Typically insulated from market shocks of this type, especially with the advent of target-date funds and similar strategies, 401k contributors weren’t resistant to what The Wall Street Journal called a “global rout.”
Monday saw a high level of activity (3.95 times the daily DC trading average) going towards fixed income, according to the Alight Solutions 401(k) Index.
“The S&P 500 2-day was -4.37% with all major benchmarks below 3% for the day,” the Illinois-based Alight added.
Thankfully, on an actual basis, 401k money movement remained low, with 0.06% of balances traded as a percentage of total balances.
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.
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.
