Little surprise, with stocks posting their worst month since March 2020, markets experienced a (perceived) flight to safety among 401k plan investors in September, according to the Alight 401(k) Index.
“Trading activity increased as stocks slid in the second half, and money flowed to fixed income.”
The Illinois-based Alight said all but two trading days in the month saw net trading activity moving money from equities to fixed income. Stable value funds accounted for 80% of net inflows, and money market funds received another 15%. Half of the net outflows were from target-date funds.
On average, 0.012% of 401k balances were traded daily, and 19 of 21 days favored fixed-income funds.
Trading inflows mainly went to stable value, money market, and bond funds, while outflows were primarily from target date, large U.S. equity, and mid-U.S. equity funds.
After reflecting on market movements and trading activity, average asset allocation in equities decreased from 68.3% in August to 67.2% in September. New contributions to equities decreased from 68.5% in August to 68.0% in September.
A Q3 ‘see-saw’
Calling it “see-sawing stock prices” for all of the third quarter, Alight said 401k plan investors traded in starts and stops.
“As Wall Street was posting gains at the beginning of the quarter, trading was light and saw trades moving money to equities,” the Illinois-based Alight wrote.
However, trading activity increased as stocks slid in the second half, and money flowed to fixed income. There were five above-normal trading days in the quarter, down from 17 above-normal days in Q2.
Net transfers for the quarter were 0.24% of balances, while 42 out of 64 trading days had net trading dollars moving from equities to fixed income.
Russia’s invasion of Ukraine and skyrocketing oil prices weighed heavily on 401k participants earlier in the year, although the hot summer months saw a chill in trading.
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 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 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.
