Slight Uptick in Q1 Self-Directed 401(k) Trading Activity

Amid the high market volatility experienced in the first quarter of 2018, there was a slight increase in self-directed brokerage account trades from the fourth quarter of 2017, according to new data from Charles Schwab.

The firm’s Self-Directed Brokerage Account Indicators Report shows that trades per quarter averaged 7.8 in Q1, up 21% from 6.4 trades the previous quarter. While that may seem like a large increase, it still equates to participants averaging just 2.6 trades per month in Q1.

The average account balance for all participants in the Schwab Personal Choice Retirement Account (PCRA) in Q1 2018 was $261,900, up 23% from Q1 2017.

“The market was more sensitive to political turmoil, including White House personnel shakeups, tariff announcements and data breaches,” the report notes. Even though the S&P 500 was down slightly after nine straight quarterly gains, this “did not mean the end of the bull market and the U.S. economy showed few signs of slowing down.”

Advised Versus Non-advised

The report also highlights significant differences in balances between Schwab’s advised and non-advised clients. The average participant balance for advised accounts was $434,513, nearly twice that of non-advised accounts at $222,070. Baby Boomers had the largest PCRA account balances and the most advised accounts at 46.8%.

Overall, 18.7% of Schwab’s SDBA accounts were managed by an independent investment advisor. Participants who used advisors also displayed a more diversified asset allocation mix and had a lower concentration of assets in particular securities. Advised participants also had a lower percentage in cash: 5% versus nearly 18% for non-advised.

Mutual Funds Still Top Dog

Self-directed 401(k) investors allocated the largest percentage of new assets into mutual funds in the first quarter of 2018, followed by exchange-traded funds (ETFs), equities and fixed income. The data shows that mutual funds continued to hold the highest percentage of participant assets, at 38.2% — up 1% from last year.

Among mutual funds, large cap funds had the largest allocation at 28%, down 2% from last year, followed by taxable bond (20%), international (17%), hybrid (13%) and small cap (12%) funds.

Equity Allocations

Allocations to equities remained the same at 29%, while ETFs (17%), cash (14%) and fixed income (2%) rounded out participants’ portfolios. During the year, participant holdings remained relatively unchanged, with no more than a 1% shift in various holdings, the report notes. Moreover, participants held an average of nearly 10 positions in their PCRAs, which is similar to last year.

Apple was the top overall equity holding, representing approximately 9% of all portfolios, according to the report. Accordingly, information technology (30%) was the largest sector holding for individual securities, followed by consumer discretionary (15%) and financials (13%). Meanwhile, utilities, real estate and telecommunication services represented the smallest allocations — each accounting for less than 2% of participants’ portfolios.

Among ETFs, investors allocated the most dollars to U.S. equity (47%), followed by international equity (18%) and U.S. fixed income (13%).

Generational Differences

As for the composition of Schwab’s SDBA participants, Baby Boomers make up the majority at approximately 42%, followed by Gen X (40%) and Millennials (11%). The average age of an SDBA participant is 51, and 60% of participants are male and 40% are female.

In a sign of perhaps being more risk averse, Millennials had the highest percentage of cash holdings out of the three generations at 18%, versus 14.4% for Gen Xers and 13.5% for Baby Boomers.

Lastly, the use of mobile devices to make trades appears to be increasingly accepted by all generations. Millennials and Gen Xers had the same percentage of mobile trades at 19%, both up 3% from the previous quarter. Baby Boomers came in 4% higher than the previous quarter, at 13%.

Schwab’s SDBA Indicators Report includes data collected from approximately 137,000 retirement plan participants who currently have balances between $5,000 and $10 million in their Schwab PCRAs.

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