Alight: 401(k) Trading Up in April, But Most Investors Stay the Course

Retirement investors’ trading within their 401(k) accounts accelerated in April, with four days of above-normal volume—up from three in the first quarter—according to Alight Solutions’ latest 401(k) index update. 

However, most investors stayed diversified and took a “long-term, buy-and-hold approach,” Alight’s wealth portfolio leader Chris Farmer wrote, in an emailed response to questions. He explained that the discipline of not trading is what tends to work best for retirement investors.

Equity markets unfolded in two distinct phases in April, Alight reported. Over the first 12 trading days, $74.5 million moved into equities from fixed income. In the final nine trading days, $212 million flowed in the opposite direction, into fixed income funds from equities. Overall, 13 of 21 trading days favored fixed income.

“The S&P 500 was down more than 7.7% over the first 21 trading days of March, then turned around and rallied more than 13.5% over the next 22 trading days through the end of April,” Farmer wrote. “That kind of back‑and‑forth on its own tends to drive more trading as investors react to sharp reversals.”

In April, new trading inflows were allocated mainly across bond funds (29%), money market (25%) and large-cap U.S. equity (24%). Company stock (62%), small-cap U.S. equity (18%) and international funds (16%) saw the highest net trading outflows.

After reflecting market movements and trading activity, the average asset allocation to equities increased to 73.9% in April, up 1.1 percentage points from March. New contributions to equities were unchanged from March.

“One of the less obvious drivers in April was concentrated activity in company stock within a small number of 401(k) plans,” Farmer wrote. “The company stock within a plan that is included in the Alight 401(k) Index was up more than 25% in April, which led to many plan participants locking in gains by selling the stock and moving the assets to other investments.”

Farmer explained that some of the assets sold off moved into other equity options, but more than half of it went into stable value and money market funds. The activity alone from one plan accounted for nearly a quarter of the net movement into fixed income during the final nine trading days of April, he wrote.

“We also saw company stock selling in another plan late in April after a nearly 10% one‑day price increase, [the profits of] which further bolstered [investors’] moves toward fixed income later in the month,” Farmer added.

Alight reported that a “normal” level of relative transfer activity is when the net daily movement of participants’ balances, as a percent of total 401(k) balances within the company’s index, equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. An “above normal” relative transfer activity day is when the net daily movement exceeds 2 times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and 2 times the average daily net activity of the preceding 12 months.