Self-Directed 401(k) Investors’ Q3 Trading Remained Steady

Despite growing signs of market volatility, trading volume among retirement plan participants’ self-directed brokerage accounts held steady from the previous quarter, according to an industry 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 third quarter trading volume was the same as last quarter at 6.3 average trades per account. Participants made the most trades in their equity holdings, followed by mutual funds and ETFs.

The findings are based on data for the three-month period ending Sept. 30, 2018, from approximately 137,000 retirement plan participants who currently have balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Account (PCRA).

The average account balance for all participants was up by nearly 24% to $275,362, from $222,239 a year ago, and up from last quarter’s $261,900. In addition, participants on average held 9.8 positions in their PCRA, which was up slightly by 1% from the previous quarter and similar to last year’s holdings.

Advisor Edge

Participants who worked with an advisor were found to have higher balances, a more diversified asset allocation mix and less exposure to individual stocks compared to non-advised participants, the report notes. The third quarter data shows that of the 19% of participants who used an adviser to manage their self-directed brokerage account, roughly 45% were Baby Boomer clients, similar to the number for Generation X (42%). Yet just 8.5% of Millennials chose to use an adviser.

In addition, the average participant balance for advised accounts was nearly twice that of non-advised accounts at $449,552, compared to $234,643. Accounts using an advisor also had more average trades than non-advised accounts per quarter at 9.5 versus 5.5.

Mutual funds continued to hold the highest percentage of participant assets in advised accounts at nearly 50%, while ETFs were the second-largest allocation, followed by equities, cash and fixed income. Conversely, non-advised participants allocated nearly 35% of their portfolio to individual equities, followed by mutual funds, cash, ETFs and fixed income.

And while all three generations had similar equity holdings overall, Millennials had the highest percentage of cash at 15.2% versus 12.8% for Gen Xers and 12% for Baby Boomers. The report explains that payroll contributions into SDBAs generally are allocated to cash and from there it is up to the participant or advisor to invest. It emphasizes that advisors kept clients’ cash allocations low, while individual investors left more of their SDBA in cash pending investment decisions.

Additionally, the report observes that advised participants invested in more blue-chip, value companies, while self-directed investors allocated to more growth stocks. For example, when comparing equity holdings, both advised and non-advised participants held Apple, Amazon and Berkshire Hathaway as their top three holdings. However, non-advised participants’ positions in Apple and Amazon were nearly double compared to participants who used an advisor.

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