red stock chart and finger pointing at it That TDF investors moved money out of funds that aredesigned to insulate savers from rash movements may be the mostdisconcerting news. (Photo: Shutterstock)

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On Monday, trading activity in 401(k) plans spiked to three times the typicaldaily average, as escalations in the Trump administration’strade dispute with China led to a 760-pointdrop in the Dow Jones Industrial Average.

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

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

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

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But for those that were spooked on Monday, their flight tosafety had the effect of locking in losses after the marketdropped.

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

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

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

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

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While the vast majority of 401(k) investors stayed put, theaccelerated trading underscores the value of automaticallybalancing savings in plan, or saving in a TDF or managedaccount.

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

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READ MORE:

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These 16 TDF managers are investing bigbucks in their own cooking

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Risk exposure: Does your plan still offer companystock as an investment option? 

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3 takeaways on trends in advisorinvesting

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.