As the stock market rally picks up steam on Election Day, some 401(k) plan investors have been making more moves than usual within their retirement savings accounts.
The amount of daily trading within 401(k) plans — traditionally seen as places to buy and hold investments — has been increasing, even as the market climbs after a tumultuous few days, and the S&P 500 index is on pace for its biggest presidential Election Day rally in more than three decades.
Investment activity in 401(k) plans was more than twice the normal daily average (or about 0.06% of balances) on the eve of the U.S. presidential election, according to 401(k) provider Alight Solutions. Investors mostly moved from equities toward fixed income on Monday, which has been the norm over the past several weeks.
“There has been a very steady movement to fixed income,” said Rob Austin, Alight’s vice president of research. “The last time we had net inflows to equities was mid-September.
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“In fact, October is the only month in our history where we had all days showing net flows to fixed income,” Austin said.
“What it’s showing us is that people are nervous,” said certified financial planner Lee Baker, president of Apex Financial Services in Atlanta and a member of the CNBC Financial Advisor Council. “Some participants are really worried how things will shake out — not just in the election itself, but what may unfold.
“We’re seeing buildings boarded up and we’re seeing some people worried about what will happen next.”
In tracking daily data of more than 2 million 401(k) investors, Alight found trading activity was lower on Monday than it was the day before the 2016 U.S. presidential election. Back then, 401(k) investment activity was three times the daily average.
Still, the increase in daily 401(k) activity so far this week could portend a trend that occurred four years ago. In 2016, the biggest trading day in 401(k) plans – and of all time, at that point – was the day after the presidential election.
Net trading activity on Nov. 9, 2016 was 4.5 times the normal trading level (or about 0.10% of 401(k) balances) with money flowing to fixed income. Yet since that time, in the past four years, the S&P 500 has risen by more than 50%.
That’s why 401(k) investors should stay the course, said CFP Ivory Johnson, founder of Delancey Wealth Management in Washington, D.C. “What they should be doing is nothing,” he said. “The election is not going to change anything with the economy and stocks.
“What is going to be impacting your 401(k) is whether a company is making money or not and how active the Federal Reserve is.”
So, what should investors do now?
“Know what your investment strategy is,” said Johnson, who is also a member of the CNBC Financial Advisor Council. “It should be the same as it was six months ago. What’s your time horizon? When do you need the money?”
It also makes sense to keep long-term financial goals in mind.
“If you’re going to be retiring soon, hopefully you’ve made adjustments to your 401(k) before today,” Baker said. “If you have time left, you’re still working and making contributions into equities in your 401(k).
“Don’t reduce them or stop them or pull out of your 401(k).”
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