Market jitters spark 401(k) trading

Market jitters spark 401(k) trading
Trading activity was eight times higher than usual on Monday, a level not seen since March 2020, according to Alight Solutions.
AUG 06, 2024

Monday’s market drop got to some retirement investors, who responded to the volatility by selling large cap stock and target-date funds and stable-value, bond-, and money-market funds.

That followed the tepid US jobs report on Friday that sent stocks tumbling Aug. 5. While most 401(k) participants don’t touch their accounts, the trading volume on Monday was over eight times higher than usual, according to data from plan provider Alight Solutions.

Trading on that day reflected just 0.08 percent of all account balances in the company’s system, but that is still nearly as much as was traded in all of July, at 0.09 percent, the firm stated. And it was the highest level of trading activity since March 2020, when people began reacting to the uncertainty of the emerging Covid-19 pandemic.

On Monday, the trades “almost universally favored a flight to safety,” Alight said in a statement. Sixty percent of the net outflows came from large-cap US equity funds, while 13 percent bled from target-date funds, according to the company’s data. Meanwhile, 61 percent of the money went to stable value, 20 percent to bonds, and 18 percent to money markets.

“Throughout the 25-year history of the Alight Solutions 401(k) Index, we have seen trading activity spike when the market suddenly drops,” said Rob Austin, the company’s head of thought leadership, in an emailed statement from a spokesperson. “Aug. 5 was no exception. Trading activity in 401(k) plans surged to levels not seen since 2020 reaching 8.3 times the average daily volume.”

The company doesn’t have data to show how much the participants who did make trades bought or sold. However, it is more common for those with higher balances to be active in trading their 401(k)s, according to the firm. That appears to be due to being more experienced with investing and potentially more financially savvy, a spokesperson said.

Of course, selling shares of stock funds while the market is down can be ill-advised, as retirement investors can essentially lock in losses and end up taking longer for their account balances to recover. At market close, the S&P 500 was up 1.04% while the Dow Jones Industrial Average had increased 0.76%, despite lagging their high points seen in mid July.

Planning to retire early? Better listen to these financial strategies

Latest News

Q1 annuity sales top $105B amid persistent economic worries: Limra
Q1 annuity sales top $105B amid persistent economic worries: Limra

Limra data shows RILAs and variable annuities outperforming, while fixed-rate deferred sales lag their 2024 highs.

Stocks continue historic winning streak as trade hopes, jobs data drive rebound
Stocks continue historic winning streak as trade hopes, jobs data drive rebound

The S&P 500's longest rally in more than 20 years came amid evidence of labor market resilience in the immediate wake of April's Liberation Day tariffs.

Americans' longevity illiteracy puts retirement at risk, finds new research
Americans' longevity illiteracy puts retirement at risk, finds new research

With membership in the "century club" expected to quadruple in three decades, joint studies from Nationwide and the TIAA Institute shed new light on people's planning blind spots.

Tariff reactions split along political lines, advisors say
Tariff reactions split along political lines, advisors say

The Watchman Group's Andrew Herzog has noticed his more left-leaning clients have been "looking to get out of the stock market, perhaps do more fixed income or go to cash" while his right-leaning clients are more comfortable keeping assets as they have them.

In periods of volatility, don’t lose sight of clients’ long-term goals
In periods of volatility, don’t lose sight of clients’ long-term goals

As you work with clients to navigate the current markets, stay grounded in their values and priorities.

SPONSORED The evolution of private credit

From direct lending to asset-based finance to commercial real estate debt.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.