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.