Trading in 401(k) plans was lighter and calmer last year compared with 2022, according to research by Alight Inc.
Net trading activity as a percentage of starting balances was 0.82% last year vs. 1.27% in 2022, as measured by the Alight Solutions 401(k) index, which is based on 401(k) trading activity of more than 2 million people with more than $200 billion in collective assets.
Last year, there were only 14 above-normal trading days compared with 41 above-normal days in 2022. Normal trading occurs when the net daily movement of participants' balance equals between 0.3 times and 1.5 times the average daily net trading activity for the preceding 12 months.
"Historically, within the Alight Solutions 401(k) Index trading increases as stocks fall," an Alight report said Jan. 18. "However, with rising markets in 2023, 401(k) investors were content to watch their balances increase and not make large trades."
The biggest sources of inflows last year were bond funds (48% of total index allocations), money market funds (28%) and large-cap U.S. equity funds (16%).
The biggest sources of outflows were target-date funds (39%), company stock (24%) and stable value funds (17%). The target-date allocation also includes target-risk funds, which represent less than 10% of that category.
However, target-date funds provided the biggest source of contributions (49%), with large-cap U.S. equity funds (21%) and international equity funds (7%) far behind. Thanks to target-date funds dominance among qualified default investment alternatives, the difference between contributions to and outflows from target-date funds remained dramatic last year: $8.3 billion for the former vs. $704 million for the latter.
The allocations to target-date funds (31.4%) and large-cap domestic equity funds (27.5%) together were higher than the combined total of the 11 other assets classes in the Alight index.
