Alight Solutions is out with its observations of 401k space in 2017 and likes what it sees, noting it was the slowest trading year in the two-decade history of the Alight Solutions 401(k) Index.
Elections, legislation, the possibility of nuclear war (!)—none of it seemed to rattle 401k participants as markets and accounts balances soared.
“In total, 1.45 percent of total plan balances were traded during the year, down from 2.13 percent in 2016,” Illinois-based Alight reports. “There were 13 days of above-normal daily transfer activity in 2017—less than half the number in 2016 (28) and the trailing 5-year and 10-year averages (30 and 32 days, respectively).”
It attributed the behavior to innovation and products meant to keep workers on track.
“Part of the light trading activity can be explained by the prevalence of target date funds, the largest asset class in the 401(k) Index. The percentage of assets invested in target date funds grew in 2017 from 24.1% at the beginning of the year to 27.2% by the end of the year. Much of this growth can be attributed to the fact that target date funds receive the lion’s share of new 401(k) contributions. In 2017, 43% of contributions were to target date funds.”
And, of course, the so-called “Trump Bump” in market movement as a result of a regulatory rollback likely contributed to the good performance.
“Strong investment returns also likely contributed to the light trading activity. 2017 proved to be a generally positive year for investors. Large-cap U.S. equities and international equities provided strong returns with little volatility throughout the year. Bonds and small-cap U.S. equities experienced periods of volatility but still provided positive returns over the last 12 months.”
“During the 20-year history of the 401(k) Index, trading activity typically spikes when there is a downturn in the market,” Rob Austin, head of research at Alight, said in a statement. “In general, 2017 saw the markets steadily rise, so rather than rebalancing, 401(k) investors stayed the course and enjoyed positive market returns.”
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.
