The Markets August 30, 2022

401(k) Balances Reflect Volatile Period for Markets

According to a Charles Schwab report, average balances across all self-directed brokerage accounts finished 15% lower than the first quarter.

Reported by

According to Charles Schwab’s SDBA Indicators Report, an benchmark on retirement plan participant investment activity within self-directed brokerage accounts, the average account balance across all participant accounts finished at $283,485 for the second quarter ending June 30, a 19% decrease year-over-year and a 15% decrease from the first quarter of 2022.

SDBAs are brokerage accounts within retirement plans, including 401(k)s and other types of retirement plans, that participants can use to invest retirement savings in individual stocks and bonds, as well as exchange-traded funds (ETFs), mutual funds and other securities that are not part of their retirement plan’s core investment offerings.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The SDBA Indicators reflected another volatile period for markets prior to the July/August market recovery. In the second quarter, the S&P 500 hit its lowest level since December 2020 as still-high inflation, sharp increases in interest rates, rising recession risks, and ongoing geopolitical unrest pressured stocks and other assets. Against this backdrop, equity allocations decreased to 33% of assets, down from 37% last year and 36% in the first quarter. Cash allocations increased to 15% of assets, up from 12% last year and 13% in the first quarter.

Overall, participant holdings remained similar to the previous quarter, the report says. Equities remained the largest holding, with the largest sector being information technology at 29%. The top equity holdings were Apple (12%), Tesla (8%), Amazon (4%) Microsoft (3%) and NVIDIA (2%).

Mutual funds were the second-largest holding at 28.8%, with the largest allocation going to large-cap stock funds at 33.9%. They were followed by taxable bond (20%) and international (14%) funds, the report says. ETFs held 21% of participant assets. Among ETFs, investors continued to allocate the most dollars to U.S. equity (51%), followed by fixed income (14%), international equity (13%) and sector (12%) ETFs.

Advised accounts held higher average account balances compared to non-advised accounts, $460,376 vs. $240,974, the report says. Gen X had the most advised accounts at 50%, followed by Baby Boomers (32%) and Millennials (15%).

Gen X made up approximately 46% of SDBA participants, followed by Baby Boomers (30%) and Millennials (19%), the report says. Baby Boomers had the highest SDBA balances at an average of $452,381, followed by Gen X at $252,477 and Millennials at $85,121.

Trading volumes were lower at an average of 11 trades per account compared to 14 last quarter and a year ago, the report says. On average, participants held 13 positions in their SDBAs at the end of the second quarter, consistent with the previous quarter and similar to last year.

The Markets August 30, 2022

Understanding Investor’s Evolving Concerns

Investors are less confident making decisions on their own, but most see positive change when they receive help from an adviser, according to data from Principal.

Reported by

Principal Financial Group has published new data about investors’ worries in the current market environment, finding many are seeking guidance and support tailored to their career stage.  

The findings from Principal show a correlation between the availability of financial advisory resources and higher investor confidence. As the data shows, many investors have a lot of concerns and little confidence in their investments. Further, the investment process is an emotional experience filled with questions, the firm says.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

The three top fears investors face are seeing their rate of return not keeping up with inflation (33%), navigating extended periods of investment losses (31%) and not knowing who to trust (29%).

With these concerns on their minds, investors don’t feel good about making investment decisions, with 84% who feel emotional, over 50% who feel uncomfortable and fewer than 30% who feel positive, the firm says. All this contributes to low confidence levels, with more than 75% of investors saying they would like help with selecting investment options.

Only three in 10 investors are comfortable making solo investment decisions. Investor’s rank “not confident” as their number one feeling, but the firm says this is a known issue to most investors and they want to make a positive change in their investment strategies going forward. Confidence levels increase dramatically, to 85.7%, when investors are offered support from a financial professional.

According to the data, many investors do not naturally connect their perceived need for financial advice to triggers such as a salary increase or sustained growth in savings levels. Instead, investors tend to cite major life milestones, such as reaching a certain age (46%) or experiencing a major life event (41%). More than three-quarters of investors are looking for help with investment options, contribution rates and when to retire. The vast majority (76%) want personalized advice.

Cost is the top reason investors don’t seek out professional financial advice, but what many young investors may not know is that their current retirement plan or employer may already offer built-in financial professional services—free of charge, the firm says. The average age an investor thinks they should seek financial advice is 35 years old, but Principal notes that building a relationship with younger retirement savers could contribute to healthier savings behaviors.

«