Alight Solutions 401(k) Index™: 2021 Observations

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) Index^TM. 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%).

After reflecting contributions, trades, and market activity, 401(k) investors ended 2021 with 70.7% in equities, up significantly from 67.7% at the beginning of the year.

The following table shows the returns of major market indices for the year ending December 31, 2021:

¹ A “normal” level of relative transfer activity is when the net daily movement of participants’ balances, as a percent of total 401(k) balances within the Alight Solutions 401(k) Index™ equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and 2 times the average daily net activity of the preceding 12 months.

² Target date funds also include the amounts in target risk funds. The amount in the target risk funds is less than 10% of the total.