As Wall Street had another banner year in 2021, 401(k) investors were infrequent traders and mostly content to watch their balances grow, according to the Alight Solutions 401(k) IndexTM. Net trading activity for the year was 0.53% of balances, the lowest on record for the 401(k) Index, which started in 1997, and well below 2020’s value of 3.51%. There were 3 days of above-normal1 activity, a stark contrast to the 47 seen in 2020 when the market was much more volatile.
When trades occurred, they tended to see people in profit-taking mode, moving money from large cap U.S. equities and target date2 funds into more conservative investments like stable value and bond funds.
401(k) investors increased their equity exposure in 2021 from 67.7% at the beginning of the year to 70.7% at the end of the year. This is primarily due to 3 factors: light trading activity during the year, new contributions overwhelmingly favoring equities, and near-record highs in equity markets. The last time a year closed with an equity percentage over 70% was 2000 (73%).