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May Markets Continue Mend of the Average 401(k)

Industry Trends and Research

It’s said that April showers bring May flowers—and the average 401(k) balance continued to bloom in May. In fact, most are back to, and in many cases ahead of, where they began the year. 

According to estimates from the non-partisan Employee Benefit Research Institute (EBRI), the average 401(k) account for younger (25-34), less tenured (1-4 years) workers climbed 4.4%, while that of older (age 55-64) workers with more than 20 years of tenure gained 3.2%. Both built on gains in April, when the average 401(k) for the younger, less tenured demographic rebounded 9.8%, and that of older, longer-tenured workers surged 8.1%, according to EBRI estimates.[i]  

May’s increases were boosted by (mostly) resurgent stock markets; the S&P 500, Dow and Nasdaq each notched a second straight monthly increase, and closed at their highest level since March. The S&P 500 and Dow Jones Industrial Average both climbed more than 4% in May, though even with those gains (and April’s surge), the indexes are still down 5.8% and 11%, respectively, for the year. On the other hand, the NASDAQ (granted, not a big 401(k) holding) was up 6.8% in May and is up 5.8% for 2020.

As for those average 401(k) balances, year-to-date the average balance for the younger, less tenured cohort is up 3.3%, while that of the older, longer-tenured group is still down—but only 0.2%.[ii] Bear in mind that the older cohort’s average balance is generally more influenced by market moves than contributions, while contributions have a larger proportionate impact on the younger group, which typically has smaller account balances. 

There’s an old investment adage that cautions “sell in May and go away”—a strategy based on the notion that markets fare better from November to April than the following six months. But then, these are not “normal” times. We shall see.

[i]EBRI’s analysis is based on the organization’s huge database of some 26 million 401(k) plan participants in more than 101,000 employer-sponsored 401(k) plans representing nearly $2 trillion in assets. It includes data provided by a wide variety of plan recordkeepers and, therefore, portrays the activity of participants in 401(k) plans of varying sizes—from very large corporations to small businesses—with a variety of investment options. 

[ii]Lest we forget, In March, the average 401(k) account for younger (25-34), less tenured (1-4 years) workers, plunged 7.3%. Older (age 55-64) workers with more than 20 years of tenure also shed 7.3%, according to estimates from the nonpartisan Employee Benefit Research Institute (EBRI).