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Average 401(k) Springs ‘Forward’ in March

Industry Trends and Research

While there were definitely some blustery headwinds, the average 401(k) closed out the first quarter on a strong note.

By this point in the calendar a year ago, we had all (just) awakened to the dangers of the Coronavirus. And in a month of extraordinary market volatility, in March 2020 the Dow Jones Industrial Average recorded the most dismal first quarter of its 135-year history, off 26% from the record high it set… in February. The S&P 500 also set a record of a different sort for the quarter—down 24% from the record it (also) set just six weeks ago. The average 401(k) took it on the chin as well—though it was blunted by contributions and some diversity in the portfolios. 

Not that there weren’t bumps in the road, but overall, it’s been a good quarter for the markets. The Dow is up about 8%, the S&P 500 gained 6%, and the Nasdaq 3% (yeah, it’s been bumpier for tech). And, sure enough, it’s been a good quarter for the average 401(k) as well.

For younger (25-34), less tenured (1-4 years) workers, the average 401(k) climbed 6.8%. And, according to estimates from the nonpartisan Employee Benefit Research Institute (EBRI), older (age 55-64) workers with more than 20 years of tenure rose 3.5%. The groups often diverge in results—the older cohort’s average balance—being larger—is generally more influenced by market moves than contributions. 

In fact, you can glean a sense for the relative volatility of the markets in recent weeks. In March the average 401(k) of the younger, less-tenured cohort was 3.8% higher, according to EBRI, while the older, more tenured group rose 2.6%. A month ago, the latter had only just regained positive territory, rising 0.8% after a 0.6% decline in January

Looks like the average 401(k) may have turned that old saying on its ear—entering March like a lamb and closing like a lion. Are April “showers” ahead?