Q3 401(k) Trading Favors Fixed Income

September saw a flight from U.S. equities to bonds, according to a recent update to Alight Solutions’ 401(k) Index. Investors chose to move their money out of stocks and into fixed-income funds, showing a preference for safer options as the stock market posted record highs.

September was an active month for 401(k) trading, especially in the context of the third quarter of 2025. Nearly every day of the month saw net trading activity favoring bonds, stable value funds or money market accounts.

In Q3, 57 of 64 trading days had movement from stock funds to fixed-income funds. In September, 20 of 21 days favored the latter, similar to August, in which 18 of 21 days saw comparable moves. New contributions to equities decreased slightly to 70.2% in September from 70.3% in August.

There are a few ways to read into the September pick-up, according to Rob Austin, Alight’s head of thought leadership. The first is that investors were “rebalancing” their portfolios. The other is that they were considering the impact of economic uncertainties.

Investors may have asked, “‘Maybe now is the time to get out of stocks? Is the government going to shut down?’” suggests Austin. He says some may have decided it was the right time to pull back their portfolio’s equity exposure, if only slightly. The U.S. government shut down on October 1, confirming some investors’ trepidations.

Austin says plan sponsors should communicate with their participants about trading during times of market volatility. He suggests making sure participants are “investing for the long term,” as well as establishing mechanisms to take some of the “emotion” out of trading.

“Just like how market timing is difficult for a person trying to pick their [investments], it’s tough for plan sponsors to ask, ‘What’s the appropriate time to talk to people about this?’” says Austin. “When the market is high, people are pretty excited … and say, ‘Let’s keep riding the highs.’ When the market is going down, we don’t necessarily tell people to lock in losses.”

Sponsors can offer tools such as target-date funds—so participants do not have to worry about transferring assets—managed accounts and automatic rebalancing as options to remove the urge to trade.

Target-date funds were the asset class with both the largest share of total defined contribution balances (31%) and highest level of contributions (50%) at the end of September. Large-cap equity funds followed, at 30% and 22%, respectively.

As participants go through their annual open enrollment, it is a “good time to encourage them to go for a physical checkup,” Austin says. “It’s also a good time to [ask], ‘Why don’t you do a financial physical as well?’”