Election Concerns Boosted November 401(k) Trading

Heightened 401(k) trading occurred ahead of and around last month’s presidential election, with all six above-normal trading days occurring within the first nine trading days of the month, according to the latest “Alight Solutions 401(k) Index” report.

“The 401(k) Index data for November shows that many 401(k) investors reacted quickly to short-term news, rather than sticking to a long-term strategy,” says Rob Austin, head of thought leadership at Alight Solutions. “In hindsight, it’s clear that this approach was less than ideal; investors sold low and bought high, missing out on gains. Advisers can use this lesson to help clients stay focused on retirement goals instead of trying to time the market.”

Much of this activity was concentrated before the U.S. presidential election, as investors moved funds from equities to fixed income in a bid to shield their portfolios from potential market turmoil.

However, as markets rallied and stocks soared post-election, investor sentiment shifted, driving funds back into equities. This rapid pivot underscores a tendency among 401(k) participants to react to short-term events, rather than adhering to long-term investment strategies, according to Austin.

In early November, defined contribution plan experts, including Austin, cautioned that an uncertain political environment could cause volatility in the stock market, and retirement plan participants may see some changes to their 401(k) plan balances and urged plan sponsors to communicate with participants to dissuade them from making any rash changes to their investment plans.

The Alight Solutions 401(k) Index statistics for the month of November and year-to-date:

Trading inflows during the month predominantly moved into large U.S. equity, bond and money market funds, while outflows were concentrated in company stock, stable value and target-date funds.

These shifts, combined with market movements, contributed to a slight uptick in the average asset allocation to equities, which rose to 72.7% in November from 72.1% in October. New contributions to equities remained stable at 69.3%.

Target-date funds had the largest balances at the end of the month, followed closely by large U.S. equity funds.

TDFs also saw the most contributions in the month, again followed closely by large U.S. equity funds.

The Alight Solutions 401(k) Index tracks the daily transfer activity among 13 asset classes.