As markets plunge around the world, plan sponsors will learn whether all the education they’ve done teaching participants to stay the course paid off.
Rob Austin, head of thought leadership at Alight Solutions, said the firm had been monitoring 401(k) trading behavior on Aug. 5.
“We find that people are most likely to trade when the market indices fall by 2% or more in a day,” Austin said, explaining that the Aug. 2 sell-off prompted a moderately-high trading day.
“Often when there is a large market downturn on Friday, we see higher-than-normal trading activity on the following Monday because people submit trades over the weekend,” he said.
Austin added that the additional stock tumble on Aug. 5 “will do nothing to quell concerns from people who were worried about eroding retirement balances.”
While plan sponsors often provide communications about not reacting to daily swings in the market, they walk a fine line in that “they also don’t want to accidentally become a fiduciary by providing specific advice,” Austin said.
Tom Armstrong, vice president of customer analytics at Voya Financial and head of the firm’s Behavioral Finance Institute for Innovation, believes that educational initiatives by plan sponsors will persuade participants to hold tight.
While Voya has observed higher digital activity engagement during periods of market volatility over the past few years, “participants generally stay the course and most do not trade,” Armstrong said.
In the third quarter of 2022, which saw large single-day market declines, for instance, Voya saw only 1.2% of participants trading during the quarter, Armstrong said.
“Between increased usage of target-date funds and improved education, we have found that the vast majority of participants will stay the course with their investments and not react to market volatility,” he said.
While it’s too early to determine how much trading occurred in 401(k) accounts, overall trading for the day was intense with retail brokerages Charles Schwab and Fidelity Investments reporting outages.
“A technical issue experienced by some clients has been resolved. We apologize for the inconvenience,” Schwab posted on the social media platform X, after earlier saying that some clients had “difficulty logging in to Schwab platforms.”
More than 15,000 users had reported an outage at Schwab at 9:50 a.m. in New York, according to the website Downdetector, which also reported issues at Fidelity.
“We are aware some customers experienced intermittent issues earlier today,” a Fidelity spokesperson said in an emailed statement. “This is now resolved.”
The global market was roiled over the weekend following the lackluster U.S. jobs report Aug. 2 and the most significant crash of Japanese equities in more than a decade, among a variety of other factors.
