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Self-Directed 401(k) Millennial Investors Favor ETFs, Cash

Industry Trends and Research

Compared to their older counterparts, Millennials who invest through self-directed brokerage accounts may be investing more conservatively than they should be at that age, based on the results of an industry-leading benchmarking report.  

Charles Schwab’s third quarter SDBA Indicators Report, which analyzes investment trends of retirement plan participants who currently invest through self-directed brokerage accounts (SDBAs), shows that Millennials continued to allocate more to ETFs (24%) than did Gen Xers (20%) and Baby Boomers (17%). They also held slightly more cash (16%) than other generations, with Gen Xers holding 14% followed by Boomers at 12%. 

The findings are based on data collected from approximately 142,000 retirement plan participants who had balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Account at the end of 3Q 2019. 

Balances and Trading Hold Steady

The average SDBA balance for all participants in the third quarter was $276,929, nearly identical to the $276,547 from the previous quarter and 1% above the average balance from the third quarter of 2018 ($275,362). Baby Boomers had the highest SDBA balances at an average of $394,064, followed by Gen Xers at $213,018 and Millennials at $68,756.

While U.S. equities have performed positively, with the S&P 500 index up about 20% year to date, Schwab observes that most of that gain occurred early in the year, as stocks rebounded from a sharp drop in late 2018. Since then, stock market action has been choppy, the report notes. 

Schwab further observes that trading volumes were even with the second quarter, with an average of 6.7 trades per account. Participants made the most trades in their equity holdings, followed by mutual funds and ETFs.

Not surprisingly, mutual funds continued to hold the highest percentage of participant assets, with Baby Boomers allocating approximately 39% of their portfolios to them, followed by Gen Xers at 36% and Millennials at 34%. Equities were the second-largest allocation for all portfolios, with Baby Boomers and Gen Xers allocating approximately 28% of their portfolios to them, followed by Millennials at 25%. 

Apple, Amazon, Berkshire Hathaway, Microsoft, Facebook and Alphabet Inc. registered as the top equity holdings among all three generations. U.S. broad funds were the most popular ETFs, according to the report, with SPDR S&P 500 ETF, Vanguard Total Stock Market ETF and Schwab U.S. Broad Market ETF comprising the top three ETF holdings among all three generations. 

Advised vs. Non-advised

Once again, advised accounts far outpaced those of non-advised accounts. The average participant balance for advised accounts was up to $449,972 from $448,515 in the second quarter, while non-advised accounts stood at $234,087.

Gen Xers had the most PCRA advised accounts at 44.2%, with Baby Boomers trailing not far behind at 42.5%, while fewer than 10% of Millennials chose to use an advisor. Those with advised accounts also had more average trades (10.0) than those with non-advised accounts (5.8). Overall, the trading volume remained very similar to the second quarter and to last year, the report notes. 

As one might expect, participants who used advisors displayed a more diversified asset allocation mix and had a lower concentration of assets in particular securities. Schwab also observes that advised participants also had a lower percentage in cash at 3.93% vs. 17.60% for non-advised, demonstrating a good balance among all the advised investments. 

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