Market Fear Prompts 401(k) Participants to Shift Money to Fixed Income

September 20, 2007 ( - Watching the Dow Jones Industrial Average plummet in August, 401(k) plan participants fled from the equity markets, transferring money into fixed income investments 70% of the days in the month.

According to the monthly figures from the Hewitt 401(k) Index, $765 million was shifted out of equity funds, a change in direction from the month before, when investors moved their money from fixed income investments to equities on 62% of the days in the month (See 401(k) Participants Favor Equities Despite Market Volatility in July ).

The volatile month also saw the greatest number of above-normal transfer activity days in over four years when seven days during the month had moderate or high transfer volumes. This trend was particularly notable on August 16 when the DJIA ended at 12,846; transfers toward fixed income were 8.6 times the average level on that day.

Hewitt said the trend of moving money from equities to fixed income was seen across all equity asset classes, with company stock experiencing the greatest outflows for the month at $172 million.

International equities, a popular asset class in the first half of the year, also experienced large outflows amounting to $165 million, compared to the $200 million in inflows it experienced in July.

Large U.S. equity and small U.S. equity funds also experienced large transfers with $163 million and $140 million shifted out of these two asset classes, respectively.

All three fixed income asset classes had inflows in August: GIC/stable value funds received the largest transfers of more than $620 million; followed by bond and money market, receiving a combination of $195 million.

As far as 401(k) allocations, about 67.7% of participants’ balances were allocated to equities, which was 0.5% lower than at the end of July. Employee-only equity contributions were also slightly lower with 69.5% of the new contributions going into equity investments, as compared to 69.7% in July.

The Hewitt 401(k) Index is here .