Last year began one way and ended another. While trading in 401(k) plans was light overall (thankfully) periods of volatility made for interesting moves on the part of participants.
According to the Alight Solutions 401(k) Index, participants were very active during the year, with 46 days of above-normal transfer activity—the highest number of above -normal days in the last five years, much higher than the 13 days of above-normal trading in 2017.
However, net trades in 2018 amounted to only 1.42 percent of total plan balances, making 2018 and a record low year for trading activity in the over 20-year history of the index.
“This apparent discrepancy is attributed to the fact that many of the high trading activity days were concentrated around the beginning of the year and toward the end of the year, with the trades moving in opposite directions,” Alight reports.
Investors started the year January with a rush to equities. The first seven trading days of the year and 18 of the first 28 trading days were above normal with nearly universal movement from fixed-income investments to equity funds.
However, investors reversed this trend in December with Wall Street plummeted.
During the seven day stretch with the Dow dropped by at least 350 points six times, every day was an above-normal day with the money flowing from equities to fixed income.
In essence, these trades canceled out the actions for the beginning of the year.
Alight defines 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.
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.
