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Volatile Markets Whack Self-Directed 401(k) Investors

Practice Management

The average account balance for retirement plan participants who invest through self-directed brokerage accounts (SDBAs) suffered further losses through the third quarter. 

According to Charles Schwab’s SDBA Indicators Report, the average account balance across all plan participant investment activity within SDBAs finished at $273,412 for the third quarter ending Sept. 30, down by 3.55% from the second quarter of 2022 and down 19.84% year-over-year.

“The Q3 SDBA Indicators reflected another volatile period with some recovery in July and August before markets retracted in September for a third consecutive quarter of negative returns amid high inflation, increasing interest rates, rising recession risks, and ongoing geopolitical unrest,” the report observes.  

Allocation Trends

Overall, however, participant holdings were similar to the second quarter, Schwab notes. 

Equities remained the largest holding. The largest equity sector holding was Information Technology at 28.8%. The top equity holdings remained Apple (12.5%), Tesla (9.6%), Amazon (4.8%) and Microsoft (3.2%). Berkshire Hathaway held 1.95%.

Mutual funds were the second largest holding at 28.4%, with the largest allocation going to large-cap stock funds at 33.7%. They were followed by taxable bond (19.7%) and international (12.9%) funds.

ETFs, meanwhile, held nearly 21% (20.96%) of participant assets. Among ETFs, investors continued to allocate the most dollars to U.S. equity (51.7%), followed by fixed income (14.1%), international equity (12.7%) and sector (11.3%) ETFs.

Other Highlights

Schwab also found that trading volumes were slightly lower at an average of 10.6 trades per account compared to 11.2 trades per account in the second quarter and a year ago.

Gen X made up approximately 46% of SDBA participants, followed by Baby Boomers (30%) and Millennials (19%).

Baby Boomers had the highest SDBA balances at an average of $437,280, followed by Gen X at $246,206 and Millennials at $83,408.

On average, participants held 13 positions in their SDBAs at the end of Q3 2022, consistent with the second quarter and similar to last year, Schwab notes. 

Millennials and Gen X again had the higher percentage of mobile trades at 32% and 26%, with Baby Boomers at 23%. All three generations had a very similar percentage in cash with Baby Boomers at 15.06%, Gen X at 14.27% and Millennials at 14.77%, similar to last quarter for all of them.

The SDBA Indicators Report for the third quarter includes data collected from approximately 186,000 retirement plan participants who currently have balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Account (PCRA). It tracks a wide variety of investment activities and profile information on participants with a Schwab PCRA, ranging from asset allocation and asset flow trends to age trends and trading activity.