401(k) Participant Equity Holdings Improve in 2019

Participants were “less reactionary” in their trading activity and, though they moved to fixed income for most of the year, contributions and returns increased equity holdings.

December 2019 was a light month for 401(k) trading with zero days of above-normal activity, according to the Alight Solutions 401(k) Index.

On average, only 0.012% of balances were traded daily, making December the third-lightest trading month in the more than 20-year history of the 401(k) Index.

As was the case for most of 2019, trading inflows mainly went to bond ($193 million) and international equity ($33 million) funds. Outflows were primarily from company stock ($114 million) and large U.S. equity ($102 million) funds.

Although 2019 had only 25 days of above-normal daily transfer activity—much lower than 2018’s total of 46 days—the net trading activity was the highest Alight has seen since 2013, at 2.29%. Eighty-six percent of the trading days saw net trading activity move from equities to fixed income.

“In 2019, 401(k) investors largely took a more thoughtful and less reactionary approach to investing than in past years with an overwhelming trend of small trades away from equities to fixed income funds. This activity seems to suggest that people were rebalancing their portfolios, not making drastic changes to their investment mix. Heading into 2020, we encourage 401(k) investors to take this same, disciplined approach and keep long-term saving goals in mind rather than responding to market forces,” says Rob Austin, head of Research at Alight Solutions.

Bond ($2.4 billion), stable value ($1.2 billion) and money market ($547 million) funds received the most traded assets in 2019. Large U.S. equity ($2.1 billion), company stock ($1.5 billion) and small U.S. equity ($355 million) saw the highest trading outflows.

Still, large U.S. equity funds held more than one-quarter (26%) of 401(k) participants’ assets by the end of the year, an increase of 1.9% from the end of 2018. This was second only to target-date funds (TDFs), which held 29.3% of participants’ assets, up 1.3%. More than two-thirds of participants’ assets (68.1%) were in equity funds.

Though net participant transfers went to fixed income funds, investment returns and contributions kept TDFs and large U.S. equity funds in the top spots. Forty-seven percent of contributions ($7.1 billion) went to TDFs, and 20% ($3 billion) went to large U.S. equity funds.