Booming Markets Not Prompting Many 401(k) Trades

On average, just 0.01% of balances were traded daily in December, which is in line with the monthly average for the past year, according to Alight Solutions.

Alight Solutions has published both the December and 2021 year-in-review updates for its 401(k) trading index, showing a low rate of trading by retirement plan investors for both the month and the full year.

In fact, net 401(k) trading activity for 2021 was 0.53% of balances. This is the lowest level of trading on record for the Alight Solutions 401(k) Index, which started in 1997, and well below 2020’s value of 3.51%.

The index shows December continued 2021’s trend of light trading among 401(k) investors. On average, 0.01% of balances were traded daily, with more than 80% of days seeing investors favor fixed income over equity. Trading inflows mainly went to stable value funds, bond funds and money market funds, while outflows were primarily from target-date funds (TDFs), company stock and large U.S. equity funds.

After reflecting market movements and trading activity, the average asset allocation in equities increased from 70.3% in November to 70.7% in December, according to the index. On the other hand, new contributions to equities decreased from 69.7% in November to 68.3% in December.

Overall, the index update notes, Wall Street had another banner year in 2021. For their part, 401(k) investors were infrequent traders and were mostly content to watch their balances grow. There were only three days of above-normal trading activity notched during the entire year—a stark contrast to the 47 seen in 2020, when the market was much more volatile. When trades occurred, the index shows, they tended to see people in “profit-taking mode,” that is, moving money from large-cap U.S. equities and TDFs into more conservative investments, such as stable value and bond funds.

According to the index, 401(k) investors increased their equity exposure from 67.7% at the beginning of the year to 70.7% at the end of the year. This is primarily due to light trading activity during the year, new contributions overwhelmingly favoring equities and near-record highs in equity markets. For context, the last time a year closed with an equity percentage over 70% was 2000 (at 73%).