August proved to be a volatile month for U.S. markets, with rhetoric about trade wars and concerns about the inverted yield curve stoking fears of a recession. So, how did 401(k) participants fare?
It was a month in which fears about escalating U.S.-China trade tensions sent the broad stock-market index down at least 2.5% on three occasions – the most in nearly 8 years. And the yield on the 2-year U.S. Treasury note surpassed that of the 10-year for the first time since 2007 – suggesting that bond investors, at least, fear a recession is on the horizon.
All in all, according to estimates from the nonpartisan Employee Benefit Research Institute (EBRI), the average 401(k) balance for those aged 25-34 with 1-4 years of tenure managed to eke out a 0.6% gain in August – bearing in mind, of course, that those relatively smaller balances are strongly influenced by contribution flow.1 This, one month after a report showing that in the second quarter retirement savings hit record levels.
The average 401(k) balance for older, more tenured workers (those with more than 20 years of tenure, aged 55-46) – balances that are more likely to reflect the impact of the markets than contribution flows – lost ground, but just 0.2%, according to EBRI.
Year-to-Date ‘Drama’?
The stock market bounced back in the final week of August, with the S&P 500 managing to pare its loss for the month to 1.8% – but it’s still up 17% for the year, according to Dow Jones, and within just 3.3% of July’s record close.
In fact, year-to-date, the average 401(k) balance for those aged 25-34 with 1-4 years of tenure is up 28.2%, according to EBRI. And the average 401(k) balance for older, more tenured workers (those with more than 20 years of tenure, aged 55-46) is (still) up 16.2% for 2019.
That said, the S&P 500 has historically delivered its poorest return of the year in September, with an average loss of just below 1%, according to Dow Jones Market Data. But not always.
Stay tuned.
Footnote
1. EBRI’s database of some 27.1 million 401(k) plan participants in nearly 111,000 employer-sponsored 401(k) plans representing some $2 trillion in assets is unique in that it includes data provided by a wide variety of plan recordkeepers and, therefore, portrays the activity of participants in 401(k) plans of varying sizes – from very large corporations to small businesses – with a variety of investment options. The EBRI/ICI database includes demographic, contribution, asset allocation and loan and withdrawal activity information for millions of participants. EBRI has produced estimates of the cumulative changes in average account balances – both as a result of contributions and investment returns – for several combinations of participant age and tenure. You can find those results here.
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