Eroding equity markets last year prompted 401(k) investors to emphasize adding stable value and money market funds, according to an annual survey of investor behavior by Alight Solutions.
Stable value experienced the biggest percentage of trading inflows last year (76%), followed by money market funds (15%) and bond funds (8%), said the Alight Solutions 401(k) index.
Asset classes with the most trading outflows were target-date funds (53%), large U.S. equity funds (16%) and company stock (12%), said the index of 401(k) plans covering more than 2 million participants with more than $200 billion in Alight record-keeping accounts.
Last year's fixed-income trading made a small dent in the overall equity-fixed income ratio which was 68.2% to 31.8% last year vs. 70.7% to 29.3% in 2021.
Net trading activity — total transfers as a percentage of starting balances — was 1.27% last year vs. 0.53% in 2021 and 3.52% in 2020.
"Throughout the more than 25-year history of the 401(k) Index, we have seen people increase their trading activity when stocks drop — a trend that continued in 2022," Robert Austin, Alight's Charlotte, N.C.-based head of research, said in a Wednesday news release.
Trading was heaviest during the first half of 2022, but trading slowed in the second half "as Wall Street tried to rally," he said.
Although target-date funds suffered the most trading outflows last year, they also received the most contributions — a reflection of increasing popularity as a qualified default investment alternative in auto-enrollment.
Among the leading allocations for contributions, target-date funds (47%) placed well ahead of large U.S. equity funds (21%) and international equity funds (7%).
The amount of target-date contributions ($4.94 billion) was nearly triple the amount of target-date trading outflows ($1.77 billion) last year.
The largest asset allocations last year were target-date funds, which includes target-risk funds (29.9%); large cap U.S. equity (25.7%); stable value (9.6%); and bond funds (7.4%) — the same top 4 as in 2021 among 13 asset categories.
