Calmer Days Prevail in April 401(k) Participant Trading Activity

After a turbulent first quarter, 401(k) investors responded with a slower trading month in April, according to the Alight Solutions 401(k) Index. 

There were only three days of “above-normal” trading activity, all within the first week of the month. This comes after the firm reported that there were 18 above normal trading days in March—the most above-normal days in a month in more than the 20-year history of the 401(k) Index, which tracks the 401(k)-trading activity of over 2 million people with more than $200 billion in collective assets. For 2020, the year-to-date data shows that there already have been 32 above-normal trading days.

 

A “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percentage 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.

 

As for April trading, 12 of 21 days favored equity funds, with 0.023% of 401(k) balances traded daily on average. This appears to reverse the pattern from the past year where a majority of trading days favored fixed income. The current year-to-date data shows 52 days favoring fixed income, with 31 favoring equity.

 

Total transfers as a percentage of starting balance for April registered at 0.13%, with year-to-date transfers at 1.66%. Bond funds reaped the highest percentage of trading inflows for the month, at 31% for an index dollar value of $80 million, while 19% (or $47 million) went to self-directed brokerage windows and 18% (or approximately $47 million) to money market funds.

 

The largest percentage of outflows for the month were from target date funds at 44%, for an index value of $112 million, followed by company stock (24% at $62 million) and large U.S. equity funds (16% at $42 million).

 

Reflecting market movements and trading activity, Alight found that average asset allocations in equities increased from 63.1% in March to 64.7% in April, while new contributions to equities decreased slightly from 67.3% in March to 67.2% in April.

 

And in what may relieve some heartburn from the first quarter’s decline, all indices delivered positive returns. Small U.S. equities (represented by the Russell 2000 Index) rose 13.7%, large U.S. equities (represented by the S&P 500 Index) were up 12.8% and international equities (represented by the MSCI All Country World ex-U.S. Index) gained 7.6%. U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) were also up by 1.8%.

 

 

The improvement in the markets also corresponds with an improvement in the Consumer Retirement Index (CRI), as reported by Lincoln Financial. According to the firm’s data, there was an increase in the number of Americans who are “very confident” about retirement during the second half of April, with confidence levels rising from 22% to 26%. This 26% level is consistent to rates the firm saw at the beginning of the year, before the COVID-19 pandemic changed the economic landscape.

 

Not surprisingly, the overall trend the firm is seeing in consumers’ retirement sentiment closely tracks stock market performance. The CRI trended downward as the stock market hit a low in mid-March and saw a dip in early April, but rose during the remainder of April.

 

Lincoln Financial’s CRI is comprised of three key measures: confidence about being able to accumulate enough money to retire when you want; confidence about being able to convert your savings into income that will last the rest of your life; and confidence about being about to have enough money to keep the lifestyle you want in retirement.