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How Did the January Effect Affect the Average 401(k)?

Practice Management
Whether or not the so-called “January effect” was in force, the average 401(k) balance got 2020 off to a good start in January. 
 
That “January effect” is, of course, a hypothesis that there is a seasonal anomaly in the financial market where securities’ prices increase in the month of January more than in any other month, a phenomena that was first observed around 1942 by investment banker Sidney B. Wachtel. The theories behind the theory are that investors sell stocks for tax reasons at year end (such as to claim a capital loss) and reinvest after the first of the year – or that they are investing year-end bonuses. Regardless, like the Super Bowl Indicator, it doesn’t always work.
 
Still, according to estimates from the nonpartisan Employee Benefit Research Institute (EBRI), in the first month of 2020, the average 401(k) account balance for younger (25-34), less tenured (1-4 years) workers rose 1.5%. For older (age 55-64) workers with more than 20 years of tenure, whose average balance is generally more influenced by market moves than contributions, the average 401(k) balance rose 1.0%.
 
Now, in fairness, that’s well off December’s pace of increases of 3.3% and 2.0%, respectively. Then again, the markets of late have been concerned about the potential economic impacts of the coronavirus.