Traditionally, October has been a scary month for the markets—so how did they—and the average 401(k) balance—fare this year?
People tend to remember the October “crashes,” notably the stock market crash in 1929, and more recently “Black Monday” in 1987. Those recollections have gone so far as to create something called the “October effect”—the psychological anticipation that financial declines and stock market crashes are more likely to occur during this month than any other month—even though, historically speaking, anyway, September has had more down markets than October (including this past September).
Well (once again), this turned out to be a good month for the markets. The Dow surged nearly 6% in October (its best monthly gain since March), while the S&P 500 and NASDAQ were both up around 7% for the month, hitting all-time highs—and the biggest monthly gain for both since November 2020!
As for that average 401(k), that of older (age 55-64) workers with more than 20 years of tenure (re)gained 4.8% in October, while that of younger (25-34), less tenured (1-4 years) workers was up 5.6%, according to estimates from the nonpartisan Employee Benefit Research Institute (EBRI). Bear in mind that the older cohort’s larger balances are, generally speaking, more influenced by market moves than by contributions.
Year to date, the average 401(k) of the older, more tenured cohort is up 17.2% from where it began the year, while the younger group is now 27.9% higher than it ended 2020.
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