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Self-Directed 401(k) Investors Withstand Blow from 4th Quarter Volatility

Practice Management

The fourth quarter 2018 market correction weighed on plan participants’ investment activity within self-directed brokerage accounts (SDBAs). 

According to Charles Schwab’s SDBA Indicators Report, the average balance of the firm’s SDBAs fell to $246,153, a decline of 10.6% from the third quarter of 2018 and a 6.3% year-over-year decline.  

Schwab’s data shows that mutual funds continued to hold the highest percentage of participant assets at approximately 37%, the same as fourth quarter 2017. Allocations to equities remained at 28%, while ETFs (17%), cash (15%) and fixed income (3%) rounded out participants’ portfolios. 

Despite the high fourth-quarter volatility, participants stayed put, averaging just 2.2 trades per month. 

Allocation Trends

As for sector holdings within each investment category, large-cap funds represented nearly 28% of all allocations, followed by taxable bond (21%), international (16%), hybrid (12%) and small-cap (12%) funds. 
Information technology remained as the largest equity sector holding at 23.2%, but it was down from more than 32% last quarter. Not surprisingly, Apple was the top overall equity holding, representing nearly 9% of the equity allocation of portfolios, but it also experienced a 30% drop in the fourth quarter, according to the report. 

The next largest equity holding was Amazon, representing approximately 6.5% of portfolios – an increase of 3% since the end of 2017. Berkshire Hathaway (3%), Microsoft (2%) and Facebook (1.75%) rounded out the top five equity holdings. 

Among exchange-traded funds, investors allocated the most dollars to U.S. equity (48%), international equity (16%) and U.S. fixed income (15%).  

Additional findings show that participants, on average, held 9.8 positions in their SDBA, which was similar to last year and the same as the previous quarter. Baby Boomers and Gen-Xers made up nearly 41% of SDBA participants each, followed by Millennials at 12%. The average age of an SDBA participant was 51, while 76% of participants were male and 24% were female. 

Schwab’s SDBA Indicators Report includes data collected from 137,000 retirement plan participants who currently have balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Account.

Data is extracted quarterly on all accounts that are open as of quarter-end and meet the balance criteria.