2021 Saw Lowest 401(k) Trading in Nearly 25 Years

With another year on Wall Street, 2021 appears to have been the year to stand still, as 401(k) investors were satisfied seeing their balances grow, according to Alight Solutions 401(k) Index.

Net trading activity for the year was just 0.53% of stocks, the lowest on record for a 401(k) index, which began in 1997, and well below the 2020 value of 3.51%, the company noted in its 2021 notes.

Moreover, there were only three days of above-normal activity, a stark contrast to 47 days in 2020, when the market was more volatile, according to the index, which tracks 401(k) trading activity of more than 2 million. People who own more than $200 billion in collective assets.

The “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percentage of the total 401(k) balances within the index is between 0.3 times and 1.5 times the average net daily activity for the previous 12 months.

Overall, 54% (137 days) of trading days preferred fixed income, while 46% (115 days) preferred stocks. “When the trades occurred, they tended to see people in a profit taking position, moving money from large US stocks and target date funds to more conservative investments like stable value and bond funds,” Alight says in the report.

Overall, 401(k) investors increased their exposure to their stock in 2021 from 67.7% at the beginning of the year to 70.7% by the end of the year, according to company data. This is primarily due to three factors:

  • light trading activity during the year;
  • New contributions in favor of shares overwhelmingly; And
  • Near-record rises in the stock markets.

Alight notes that the last time it closed the year with an equity ratio of more than 70% was in 2000, when it closed at 73%.

2021 inflows and outflows

Fixed-value funds collected the highest percentage of trading flows for 2021, at 28% for the $3.53 billion dollar index, while 26% went to bond funds (or $3.3 billion) and 16% went to specialty/segment funds (or 2 billion dollar) ).

The asset classes with the largest trading inflows this year were large US equity funds, at 57%, with an index value of $7.36 billion, followed by TDFs with 41% (or $5.22 billion) and company stocks with 1% ($140 million).

Once again, TD mutual funds topped the list of asset classes with the most contributions for the year, registering 46% with an index value of $4.97 billion, followed by large US equity funds at 21% (or $2.3 billion) and international equity funds at 8%. (or $832 million).

4y Quarter notes

In addition to the 2021 annual notes, the company also released reports for the fourth quarter and December. As one might expect, 401(k) investors were also light traders in the fourth quarter, with only one day trading above normal.

Fourth-quarter observations also show that net transfers were 0.17% of balances — the second lowest business quarter ever. Net trading activity favored fixed income, with more than 60% of trading days – or 39 out of 64 – preferring to move funds into stable value funds, money market and bonds.

December 2021 continued the trend of light trading among 401(k) investors, with only 0.01% of stocks trading, on average, daily during the month – in line with the monthly average for the year. In addition, more than 80% of the days saw investors prefer fixed income over stocks during the month.

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