red stock chart and finger pointing at it

On Monday, trading activity in 401(k) plans spiked to three times the typical daily average, as escalations in the Trump administration’s trade dispute with China led to a 760-point drop in the Dow Jones Industrial Average.

“Almost all of the money moved to fixed income,” said Rob Austin, vice president, head of research, Alight Solutions. “It was a knee jerk reaction.”

Overall, the spike in reactionary trading in 401(k) plans was still minimal: Of the 401(k) assets Alight tracks, 0.044 percent were traded during Monday’s swoon, compared to 0.016 percent of total assets traded on an average day.

For all of 2019, money has been flowing to fixed income in plans, but in an appropriate way, said Austin, as savers rebalance portfolios after taking strong gains in equity markets since the beginning of the year.

But for those that were spooked on Monday, their flight to safety had the effect of locking in losses after the market dropped.

“There is uncertainty out there, but it’s been there for a while,” said Austin. “Predicting what is going to happen in the stock market is really difficult, particularly when you add the emotion. Relying on what you think the market might do can lead you down some scary paths.”

Monday’s trading activity showed that 26 percent of the new outflows came from target-date funds. Large cap U.S. equities accounted for 40 percent of the outflows.

That TDF investors moved money out of funds that are designed to insulate savers from rash movements may be the most disconcerting news from Monday’s numbers.

“TDFs are designed to be an investor’s entire 401(k) portfolio. Now those that moved money to fixed income from TDFs have a portfolio that doesn’t make a lot of sense,” added Austin.

While the vast majority of 401(k) investors stayed put, the accelerated trading underscores the value of automatically balancing savings in plan, or saving in a TDF or managed account.

“The idea is to try to take as much emotion out of the saving process as possible,” said Austin.

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Trading in 401(k)s spiked in trade-dispute-fueled market swoon

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