401(k) Trading in September Reflects Worst Month Since March 2020

Traders favored equities in the beginning of the third quarter as Wall Street posted gaining, but they preferred fixed-income funds in the quarter’s second half as stocks slid.

Alight Solutions has published September updates from its 401(k) Index, noting that with stocks posting their worst month since March 2020, “markets experienced a flight to safety among 401(k) plan investors.”

All but two trading days in the month saw net trading activity moving money from equities to fixed income, Alight says. Stable value funds accounted for 80% of net inflows and money market funds received another 15%. Half of net outflows were from target-date funds.

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On average, 0.012% of 401(k) balances were traded daily, compared to an average of 0.009% last month. Investors favored moving assets into fixed-income funds during 19 out of 21 trading days. Trading inflows mainly went to stable value, money market and bond funds, while outflows were primarily from target-date, large U.S. equity, and mid U.S. equity funds, Alight says.

After reflecting market movements and trading activity, average asset allocation in equities decreased from 68.3% in August to 67.2% in September. Additionally, new contributions to equities decreased from 68.5% in August to 68% in September.

In its observations for the third quarter, Alight notes that see-sawing stock prices had 401(k) plan investors trading in starts and stops. As Wall Street was posting gains at the beginning of the quarter, trading was light and saw money moving to equities. However, as stocks slid in the second half, trading activity increased, and money flowed to fixed income.

There were five above-normal trading days in the quarter, down from 17 above-normal days seen in the second quarter. Net transfers for the quarter were 0.24% of balances. Alight’s data shows that 42 out of 64 trading days in the first quarter saw net trading dollars moving from equities to fixed income.

According to the index, a “normal” level of relative transfer activity is when the net daily movement of participants’ balances, as a percent of total 401(k) balances within the index, equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and two times the average daily net activity of the preceding 12 months.