Participants Riding Out Market Swings, Let Others Panic

May 10, 2000 ( - Participants continue to ride out the market's swings, according to the Hewitt 401(k) Index, which tracks daily investment activity of 1.5 million employees at 40 of America's largest defined contribution plans. The index reveals only a normal amount of transfer activity in the four months of this year, even during April's peak volatility.

Buy on the news?

This is good news for plan sponsors whose job it is to educate their participants about commitment to asset allocation and long-term investing.

While there were days of higher-than-normal transfer activity, they did not constitute a flight from stocks. In fact, the highest level of transfer activity occurred as a movement from fixed income into equities the day after April 18, the NASDAQ Composite Index’s biggest one-day point gain and its second biggest percentage gain ever.

Even then, the higher level of movement was a net inflow to equites from fixed income alternatives. It was the only day in April with an above-average level of transfer activity, compared with April 1999 when nearly half of the trading days had above-average volume.

Ignorance bliss

“What we’ve known all along is that there is not a lot of market timing in 401(k) plans,” said Lori Lucas, a 401(k) consultant at Hewitt. “Usually, the core offerings don’t leave much room for speculation. Participants now either seem acclimated to volatility, or just aren’t sure where to move.”

Low transfer activity may not be the rule in volatile markets of the future. An increase in brokerage windows that allow participants to trade individual stocks representing a portion of their 401(k) assets, “might change the low transfer dynamic we just witnessed,” said Lucas.

And, of course, most participants aren’t (yet) watching MSNBC during the day.

The Hewitt 401 (k) Index showed net transfer activity remained low in relation to 401(k) balances – around 0.08 percent per day on average. The Index, which can be viewed at , has been tracking such activity since its inception in 1997.