TDFs Keep Participant Trading Steady in 2016

While there was some reaction to major events in 2016, 401(k) participants mostly stayed the course in their investments.

In 2016, world events including Brexit and the U.S. elections drove spikes in 401(k) trading followed by long lulls in activity, according to the Aon Hewitt 401(k) Index.

There were 28 days of above-normal trading activity in 2016, slightly less than the past five and 10-year averages (32 and 35 days, respectively). Nearly one-third of the higher-than normal trading days for the year occurred in the weeks leading up to the U.S. Presidential election. 

A net total of 2.13% of balances traded in 2016, slightly higher than the trailing five year average (2.02%). The percentage of assets in target-date funds (TDFs)  rose to 24.1% in 2016, up from 23.1% in 2015.

The percentage of assets in company stock continued to decline. Company stock represented 8.7% of total 401(k) assets, down from 9.5% in 2015. After reflecting market movement, contributions and trades, the percentage of balances in equities (65.4%) and fixed income (34.6%) at the end of 2016 remained unchanged from year-end 2015.

“The rise of assets in target-date funds accounts for some of the light-trading in 401(k)s we saw in 2016,” explains Rob Austin, director of retirement research at Aon Hewitt. “While we did see some reaction by 401(k) inve,stors to major events in 2016, it was more measured than what we have seen in prior years. By and large, investors stayed the course and kept their eye on their long-term investment goals.”

NEXT: December trades favored equities

December was a light trading month for investors in defined contribution plans according to the Aon Hewitt 401(k) Index—a sharp contrast to November, which saw the highest trading activity in over three years. There were zero above-normal trading days in December. On average, 0.017% of balances traded each day, and when participants made trades, they favored equities over fixed income funds.

Small U.S. equity funds saw $130 million in inflows in December, followed by Large U.S. equity funds ($102 million) and Mid U.S. equity funds ($71 million). Company stock funds saw the most outflows during the month, at $163 million. Bond funds posted outflows of $114 million, while Stable Value funds posted outflows of $49 million.

After combining contributions, trades, and market activity in participants’ accounts, the percentage of balances in equities was 65.4% at the end of December, up from 65.0% at the end of November. New contributions continue to favor stocks, but at a lower rate than in the past. In December, 65.2% of employee contributions were into equities—a decrease from 65.7% in November.

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