With Wall Street having another banner year, 2021 apparently was the year of standing pat, as 401(k) investors were content to watch their balances grow, according to the Alight Solutions 401(k) Index.
Net trading activity for the year was only 0.53% of balances, the lowest on record for the 401(k) Index, which started in 1997, and well below 2020’s value of 3.51%, the firm notes in its 2021 observations.
What’s more, there were only three days of above-normal activity, a stark contrast to the 47 days in 2020, when the market was much more volatile, according to the index, which tracks the 401(k) trading activity of over 2 million people with more than $200 billion in collective assets.
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 Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.
Overall, 54% (137 days) of trading days favored fixed income, while 46% (115 days) favored equity. “When trades occurred, they tended to see people in profit-taking mode, moving money from large cap U.S. equities and target date funds into more conservative investments like stable value and bond funds,” Alight says in the report.
Overall, 401(k) investors increased their equity exposure in 2021 from 67.7% at the beginning of the year to 70.7% by the end of the year, according to the firm’s data. This is primarily due to three factors:
- light trading activity during the year;
- new contributions overwhelmingly favoring equities; and
- near-record highs in equity markets.
Alight notes the last time a year closed with an equity percentage over 70% was in 2000, when it closed at 73%.
2021 Inflows and Outflows
Stable value funds collected the highest percentage of trading inflows for 2021, at 28% for an index dollar value of $3.53 billion, while 26% went to bond funds (or $3.3 billion) and 16% went to specialty/sector funds (or $2 billion).
Asset classes with the most trading outflows for the year were large U.S. equity funds, at 57% for an index value of $7.36 billion, followed by TDFs at 41% (or $5.22 billion) and company stock at 1% ($140 million).
Once again, TDFs topped the list of asset classes with most contributions for the year, registering at 46% for an index value of $4.97 billion, followed by large U.S. equity funds at 21% (or $2.3 billion) and international equity funds at 8% (or $832 million).
4th Quarter Observations
In addition to the yearly observations for 2021, the firm also released reports for the fourth quarter and December. As one might expect, 401(k) investors were also light traders in the fourth quarter, with only one day of above-normal trading.
The fourth quarter observations also show that net transfers were 0.17% of balances—the second lightest trading quarter on record. Net trading activity favored fixed income, with over 60% of trading days—or 39 out of 64—favoring moving money into stable value, money market and bond funds.
December continued 2021’s trend of light trading among 401(k) investors, where only 0.01% of balances, on average, were traded daily during the month—in line with the monthly average for the year. Additionally, over 80% of days saw investors favoring fixed income over equity during the month.
