Trading in 401(k) Accounts Spikes With Savers Seeking Safety

(Bloomberg) -- In what feels like another era, President Donald Trump tweeted, “STOCK MARKET AT ALL-TIME HIGH! HOW ARE YOUR 401K’S DOING? 70%, 80%, 90% up? Only 50% up! What are you doing wrong?”

About two months and a 22% plunge in the S&P 500 Index later, employees with workplace retirement savings accounts have been looking at how their 401(k)s are doing -- and it’s making them anxious.

On March 12, when stocks posted their steepest daily drop in more than three decades, net trading among 401(k) investors was more than 12 times the normal level, according to the Alight Solutions 401(k) Index. It was the second-highest relative net trading day in the 20-plus year history of the index, eclipsed only by Feb. 28.

Since 1997, there have been only four days where the activity was more than 10 times the average, and three of those have been in the last 11 trading days, according to benefits administrator Alight Solutions.

That doesn’t mean retirement savers are feverishly trading, since the results are based on a relatively small amount of activity. Also, it doesn’t necessarily mean that everyone is bailing out of equity markets -- some of the trading is savers buying on what they’re betting is a dip.

Trading for all households at Vanguard Group has been up for the past two weeks -- at about 1% compared with a typical 0.4% -- and rose to 1.6% on March 12. Still, only about 0.33% of households that had only workplace retirement savings plans at Vanguard made a trade that day, a spokeswoman said.

On a normal day, 1% of Empower Retirement’s call volume is related to trading -- people looking to exit a position, change investments, invest more or rebalance, a spokesman for the Greenwood Village, Colorado, record-keeping company said. In the first three days of this week, that volume rose to as much as 3%.

Calls from savers were up 45% compared with normal volume through mid-day on March 12 before calming down in late afternoon, Empower said. When callers did take action, “they were asking about moving to safer investments, such as stable value funds and money market funds,” President Edmund Murphy said in a note to the 39,000 employers whose plans Empower manages.

Empower administers $610 billion for about 9 million retirement plan participants.

©2020 Bloomberg L.P.

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