Participants in 401(k) plans are becoming more comfortable with equity investing, raising their allocation in July to 70.2% — the highest rate in 18 months — according to a monthly index of 401(k) investing from Alight Solutions.
"The July findings are significant because it shows that investors are starting to believe more in investing in stocks over fixed income," said Robert Austin, director of research, in an email.
June and July represented the first time since March and April 2021 that the Alight Solutions 401(k) index recorded two consecutive months of net inflows to equity thanks to trading activity and market appreciation, Alight said in a report issued Aug. 11.
The record equity allocation in the index's 25-year history was 74.2% in August 2000. The equity allocation was 70% in January 2022. The lowest monthly equity allocation since then was 67.2% in September 2022.
For July, large domestic equity funds accounted for the biggest (42%) source of trading inflows, followed by money market funds (22%) and target-date funds (13%). Asset classes with the most trading outflows were stable value (63%), company stock (29%) and small cap U.S. equity funds (5%).
Target-date funds remained the largest asset class for contributions (51%), with large U.S. equity funds (21%) placing second and international equity funds (7%) placing third in July. (The target-date figure includes target-risk funds, which account for less than 10% of the total.)
The Alight 401(k) index reflects activity of more than 2 million participants with more than $200 billion in Alight record-keeping accounts.