401(k) Trading Remains Light Despite Market Volatility

Observations from Alight’s 401(k) Index for the month of August found that plan participants remained light traders during the month’s rising and falling of stocks.  
While there were two above-normal trading days—the first since mid-June—net trades as a percent of balance (0.07%) reflected the second lowest month in the more than 20-year history of the Alight 401(k) Index, the firm notes.  

This is mainly because traders favored equities in the beginning of the month as stocks were gaining, but they favored fixed income funds as Wall Street had sell-offs in the second half of the month.

“What we found in August was in some ways an encapsulation of something we’ve seen time in and time out,” explains Rob Austin, Head of Research at Alight. “When the market was going up on the first half of the month, we found people buying into equities. But when the market was correcting in the second half of August, we found that people were selling out of those equities. In other words, people were buying when it was high and then selling when it went low,” he says.  

On average, 0.009% of 401(k) balances were traded daily. In addition, 13 of 23 days favored equity funds. This is somewhat of a shift, as the year-to-date data shows that 116 or 69% of trading days favored fixed income, compared to only 51 days (or 31%) favoring equity.

As to inflows and outflows during the month of August, trading inflows mainly went to bond, large U.S. equity and international equity funds, while outflows were primarily from target date, stable value and mid U.S. equity funds. Overall, Alight found that bond funds topped inflows (50%), while most outflows were from target date funds (37%).

After reflecting market movements and trading activity, the average asset allocation in equities decreased from 68.6% in July to 68.3% in August, the Index notes.
Meanwhile, new contributions to equities remained at 68.5% from July through August.

Alight tracks the 401(k)-trading activity of over two million people with more than $200 billion in collective assets. A “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percent of total 401(k) balances within the 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.