Following a year that saw the lowest trading in nearly a quarter century, 401(k) investors were stirred back into trading to start the new year.
Against the backdrop of a volatile stock market, 401(k) investors were busy traders in January, trading an average of 0.017% of balances daily. This was the highest level in a year, according to Alight’s January 2022 401(k) Index, which tracks the 401(k)-trading activity of over 2 million people with more than $200 billion in collective assets.
What’s more, January 2022 had five above-normal trading days—a considerable increase from the three days seen in all of 2021, Alight notes. 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, when trades occurred, investors appeared to move into safer investments, as roughly two-thirds of trading days (13 out of 20) saw investors favoring moving assets into fixed income over equity.
Inflows and Outflows
During January, trading inflows mainly went to stable value, bond and money market funds, while outflows were primarily from target date, large U.S. equity and mid U.S. equity funds. According to Alight’s data, stable value funds collected the highest percentage of trading inflows for the month, at 61% for an index dollar value of $240 million, while 16% went to bond funds (or $62 million) and 11% went to money market funds (or $45 million).
Asset classes with the most trading outflows for the month went to target date funds, at 44% for an index value of $174 million, followed by large U.S. equity funds at 36% (or $141 million) and mid U.S. equity funds at 12% ($46 million).
After reflecting market movements and trading activity, the average asset allocation in equities decreased from 70.7% in December to 70% in January. Still, new contributions to equities increased from 68.3% in December to 70.1% in January, Alight’s Index shows.
Asset classes with most contributions in January included target date funds, at 46% for an index value of $751 million, followed by large U.S. equity funds at 21% (or $353 million) and international equity funds at 8% (or $130 million).
Market Performance
As to market returns for common indices, U.S. bonds (represented by the Bloomberg U.S. Aggregate Bond Index) was 2.15% for the month of January; U.S. large equity (represented by the S&P 500 Index) was 5.17%; U.S. small equity (represented by the Russell 2000 Index) was 9.63%; and international equity (represented by the MSCI All Country World ex-U.S. Index) was 3.69%.
