A rough month for stocks caused a $635 million shift among DC plan participants to fixed-income investments from equities in May, according to Hewitt Associates’ 401(k) monthly index.
Hewitt’s report noted that the Dow Jones industrial average dropped more than 7% in May, adding that participants “reacted strongly” to market declines.
“People are mostly reacting to the market downturn,” Pam Hess, Hewitt Associates’ director of retirement research, said in an e-mail response to questions. “The volumes of transfer were significantly higher than average, a level not seen since the first quarter of 2009.”
For example, on May 6, the date of the “flash crash” when the Dow fell 3.2%, net transfers were four times the typical daily average and were “strongly fixed-income oriented,” according to the report. On May 20, when the Dow dropped 3.6%, the volumes of transfers to fixed-income investments were triple the daily average.
Ms. Hess said that over the last two years, participants have responded “strongly to market downturns, and much less so towards upturns.” She added that the first few days in June produced “a continuation of May’s momentum towards fixed income.” In five of the six June trading days tracked by Hewitt, transfers were oriented toward fixed income, she said.
Hewitt’s index is based on large plans for which Hewitt is a record keeper, representing $110 billion in assets and 1.7 million participants, Ms. Hess said.