Despite stock market volatility, an overwhelming majority of Vanguard investors took no action between Feb. 19 and March 20.
Despite stock market turmoil and volatility, an overwhelming majority of Vanguard investors — in taxable and retirement accounts — took no action between Feb. 19 and March 20.
"A key takeaway is that despite the sharp jump in trading, over 90% of Vanguard U.S. individual investors have 'stayed the course' and not traded in response to the market decline," said a Vanguard report issued March 27. The precise percentage is 91.7% who did nothing.
When looking at investors who did trade, Vanguard found that participants in defined contribution plans were the least active during this period. That's no surprise, according to Vanguard data.
Among the 8.3% of all investors who traded during this period, the most active were individuals who had taxable accounts and individual retirement accounts — almost 10 times the rate of the DC-only investors.
Among the traders, the percentages were as follows: DC-only investors (2.5% traded); IRA-only investors (6.2%); taxable account-only investors (9.5%); DC crossover investors, which Vanguard defines as "individuals with DC and IRA and/or taxable accounts" (16.9%); and IRA and taxable account investors (24.5%).
For each type of investor, Vanguard also looked at their trading activity during the Feb. 19-March 20 periods for the years 2011 through 2019. In each category, the latest trading rates were higher than the annual average for the 2011-2019 period.
Among all traders, 50.3% made one transaction during the Feb. 19-March 20, 2020, period, while 18.2% made two trades. The rest made more than two trades. The Vanguard report also said about 70% of the traders moved money into equities rather than fixed income. However, the net flow into fixed income during this period was "modestly positive, indicating that households with the highest balances are moving away from equities," the report said.
"This suggests that older and/or wealthier households are more likely, by a small margin, to sell stock into stock market declines, while the typical household 'buys on the dips,'" the report added.
Vanguard's analysis excludes participants in the firm's managed account program and participants in the firm's advisory services program. It covers 8.5 million households of which 42% have only DC plans, 27% have only IRAs, 11% have only taxable accounts, 5% have DC crossover accounts and 15% have IRAs and taxable accounts.
