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Democratic lawmakers are renewing a proposal aimed at helping to narrow the wealth gap in the U.S.
“Baby bonds” of $1,000 per child, plus up to $2,000 per year based on income, may help pay for tuition or other costs once they turn 18.
Here’s how the proposal would work.

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Democratic lawmakers in Washington are renewing a proposal to give every American child $1,000 at birth.
The “baby bond” funds, called American Opportunity Accounts, would then be topped off with up to $2,000 per year, depending on a family’s income.

The accounts would be federally insured and managed by the U.S. Department of the Treasury.
Account holders would be able to access the funds once they turn 18 to pay for eligible uses, such as higher education or homeownership.
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The bill, called the American Opportunity Accounts Act, was re-introduced last week by Sen. Cory Booker, D-N.J., and Rep. Ayana Pressley, D-Mass.
For a family of four with less than $25,100 in income, the accounts may reach $46,215 by the time a child reaches 18, based on 2019 estimates. Those sums would be reduced for families with higher incomes, as annual supplement payments gradually phase out. For a family of four with income of $125,751, a child turning 18 would see an estimated account balance of $1,681, with $0 annual payments.

Taxing estates, heirs to give youngest Americans a lift

The legislation calls for making the changes fully paid for by raising inheritance and estate taxes. A 2019 analysis by the Committee for a Responsible Federal Budget found the bill’s proposed revenue increases would more than offset the cost of the legislation.
“‘Baby bonds’ would fix our broken tax code by providing every American child with start-up capital for their life, and helping to drive down the wealth inequality that holds American families back from their full potential,” Booker said in a statement.
The policy is aimed at narrowing the wealth gap, which has grown dramatically in the past 50 years, according to the lawmakers. It may also help the persistent racial wealth gap.

In 2016, Black households had a median wealth of $17,100 and Hispanic households had $20,600, while white households’ wealth was a median of $171,000, according to the Pew Research Center.
The idea of baby bonds is getting traction in some states.
Baby bond legislation has passed in California, Connecticut and Washington, D.C. Another eight states have introduced legislation, according to the Urban Institute, including Iowa, New Jersey, New York, Wisconsin, Washington, Delaware, Nevada and Massachusetts.
The terms for how much funds would provide, as well as permitted uses for the money, varies. The total endowments by adulthood start from $3,000. The federal proposal, which would provide almost as much as $50,000 to the lowest income families, is the most generous.

Bipartisan support varies on federal and state levels

The reintroduction of the federal proposal provides an opportunity for a more universal program, rather than a state-by-state approach to baby bonds, noted Madeline Brown, senior policy associate at the Research to Action Lab at the Urban Institute.
A national policy may reduce the wealthy disparity between young white and Black Americans to a ratio of 1 to 4, according to the research. Estimates have found young white Americans have 16 times the wealth of young Black Americans, based on median incomes.
“Wealth isn’t just for the wealthy; it really is a component for financial health,” Brown said.
“If the goal is really to address wealth inequity, programs like baby bonds that are starting early and thinking about how do you actually grow dollars long term are really exciting because they can be an important tool in this whole financial security toolbox,” she said.

To date, the support behind the federal bill comes from the left side of the aisle, including Sens. Chuck Schumer, D-N.Y.; Elizabeth Warren, D-Mass.; and Bernie Sanders, I-Vt.
However, there is more bipartisan support at the state level, according to Brown. Part of that is due to residency requirements, Brown said, which may encourage young people to stay and join the workforce, buy homes and start families and businesses in the states.
In order for baby bonds to successfully address wealth gaps, the policies should have six components, according to the Urban Institute. That includes universal eligibility for all children; deposits that are progressive, or based on household wealth; terms that allow for flexible use of the funds for wealth-building activities like tuition, home purchases or starting a business; financing provided by the government; substantial endowments that would protect the principal while earning a return on the money; and making the young people the ultimate beneficiaries of the money.

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Federal student loan payments could resume as early as May, depending on how quickly the Supreme Court reaches a decision on student loan forgiveness.
The pandemic-relief policy has now been extended eight times and spanned nearly three years.

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Restart depends on Supreme Court decision timing

When student loan payments restart depends on how long the Supreme Court justices take to issue a decision on the president’s plan, said higher education expert Mark Kantrowitz.
In November, the U.S. Department of Education announced the latest extension to the payment pause on federal student loans, saying the bills would resume 60 days after the litigation over its student loan forgiveness plan resolves. If the legal issues with the administration’s forgiveness plan are still unfolding by the end of June, or if it’s not allowed to move forward with forgiving student debt by then, payments will pick up at the end of August.

“If the court issues a ruling a few weeks after the Feb. 28 hearing, repayment could restart in May or June,” Kantrowitz said. “If they wait until the end of the term in June or July, then there’d be an August or September restart.”
In an analysis of the last Supreme Court’s term, Kantrowitz found that half of the decisions were issued in June.

Servicers will determine when your payment is due

Federal student loan payments have been on pause since March 2020, when the coronavirus pandemic first hit the U.S. and crippled the economy. Resuming the bills for more than 40 million Americans will be a massive task.
When a borrowers’ payment is due again will depend in part on their timeline with their servicer, Kantrowitz said.
“They’re not going to restart everybody’s student loan payments on the same day, everywhere, all at once,” he said. “Most likely, borrowers will have the same payment due date as they did before the pandemic.”

And another extension is still possible, Kantrowitz added. He noted that the Education Department had said twice before on previous extensions of the payments pause that it would be the final extension — only to prolong it yet again.
During the extended payment pause, the Education Department is also ceasing all collection activity, it said, including the garnishment of wages and tax refunds.

Supreme Court will decide loan forgiveness fate

Shortly after Biden announced his sweeping plan to cancel up to $20,000 in student debt for millions of Americans, a number of conservative groups and Republican-backed states attacked the policy in the courts.
Two of these lawsuits — which the Supreme Court has agreed to hear oral arguments for — have been successful in at least temporarily halting the relief.
The high court justices should put an end to the uncertainty on loan forgiveness.

Sixty days will be enough to forgive student loan debt if the president’s plan survives.

Mark Kantrowitz
higher education expert

“The benefit of the Supreme Court ruling is that it will settle, for now, all of the litigation related to the loan forgiveness,” Dan Urman, a law professor at Northeastern University, said in an earlier interview with CNBC.
If the justices allow student loan forgiveness to go through, many borrowers will never have to restart payments. According to a White House estimate, roughly 20 million people could have their debt entirely cleared under the president’s plan.
“Sixty days will be enough to forgive student loan debt if the president’s plan survives,” Kantrowitz said. “They’ve already approved forgiveness for 16 million borrowers, so they just need to transmit this information to the loan servicers.
“It should take one to two weeks for the servicers to implement.”

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If you get paid biweekly as a W-2 employee, there are two months out of the year when you will receive three paychecks instead of two.
Depending on your pay schedule, the first one for 2023 could be in March.
Here’s how to plan for an extra check.

These are the three-paycheck months in 2023

If your first paycheck in 2023 was Friday, Jan. 6, your three-paycheck months will be March and September.
Otherwise, if your first paycheck in 2023 was Friday, Jan. 13, your three-paycheck months will be June and December.

How to make the most of a three-paycheck month

“March is a great time to receive that third paycheck,” said Winnie Sun, co-founder and managing director of Sun Group Wealth Partners, based in Irvine, California, and a member of CNBC’s Advisor Council.

Particularly with the tax deadline approaching, there are some smart strategies you can employ, she said, such as setting some funds aside if you expect to owe money this year or putting the cash toward your individual retirement account, which can potentially lower your tax bill.
But before making any investment moves, “if you have credit card debt, that needs to be paid off first,” Sun advised. As day-to-day expenses continue to rise, Americans are taking on more debt. At the same time, annual percentage rates are also heading higher, making it much more expensive to carry a balance.

“Now might be a really good time to have that extra cash, given the uncertainty in the economy,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York and a member of CNBC’s Advisor Council.
Still, rather than plan monthly expenses and savings from paycheck to paycheck, a better way to budget is to consider your income over the course of the year to smooth out the highs and lows and then view your cash flow on a monthly basis, Boneparth advised. (Here’s a simple way to make a monthly budget and start saving money.)
The “bonus” paycheck “is really an illusion,” he said.
Subscribe to CNBC on YouTube.

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If you’re looking for ways to trim your yearly tax bill, experts may check your portfolio, since some investments are more likely to trigger taxes in certain accounts.
Generally, assets creating income are better suited for a tax-deferred or tax-free account.
However, you’ll also need to consider your goals and timeline when deciding where to keep your investments.

dowell | Moment | Getty Images

If you’re looking for ways to trim your yearly tax bill, experts may check your portfolio, since some assets are more likely to trigger taxes in certain accounts.
Your 401(k) account offers tax-deferred growth, meaning you won’t owe levies on yearly income, such as dividends and capital gains.

By contrast, you may owe taxes for selling assets or receiving income in a brokerage account, which may be a surprise for some investors.
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“I definitely take that into consideration when I’m designing portfolios for clients,” said JoAnn May, a certified financial planner at Forest Asset Management in Berwyn, Illinois. “I always keep the taxability of assets in mind when strategizing where things are going to go.”
If you have three types of accounts — brokerage, tax-deferred and tax-free — you can pick the best spot for each asset, said May, who is also a certified public accountant. 
Since bonds may have less growth but distribute income, they may be suitable for tax-deferred accounts like your 401(k) plan, she said, and investments most likely to appreciate may be ideal for tax-free accounts, like a Roth individual retirement account.

However, if you don’t have the three account options, there may be other opportunities for tax efficiency, May said.
For example, if you have a large enough bond portfolio, you may have to put some assets in a brokerage account. But depending on your income, you may consider municipal bonds, she suggested, which generally avoid federal levies and possibly state and local taxes on interest. 
Other assets to avoid in a brokerage account are real estate investment trusts, or REITs, which must distribute 90% of taxable income to shareholders, said Mike Piper, a CPA at the firm in his name in St. Louis.

“If you have to have [funds] in taxable accounts, you want to make sure it’s generally something with low turnover,” he said.
Exchange-traded funds or index funds generally spit off less income than actively-managed mutual funds, which typically have year-end payouts.
Of course, taxes aren’t the only factor when deciding where to keep your assets. You’ll also need to consider your goals and timeline.

There’s a tax risk for all-in-one funds

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Another investment that’s better suited in tax-deferred or tax-free accounts is all-in-one funds, which attempt to create a whole portfolio, such as target-date funds, an age-based retirement asset.   
Since all-in-one funds contain different types of assets, there’s no ability to put certain portions, such as bonds spitting off income, into a more tax-efficient spot, Piper explained.  
These investments also limit your ability to use tax-loss harvesting, or sell assets at a loss to offset gains, because you can’t change the underlying holdings, he said. 

For example, let’s say your all-in-one fund has U.S. stocks, international stocks and bond funds. If there’s a dip in domestic stocks, you can’t harvest those losses by selling only that portion, whereas you may have that choice if you own each fund individually.
You may also see excess turnover from the underlying funds, creating capital gains that may be taxed at regular income rates, depending on the length of ownership.   
“They’re really just not a great fit for taxable accounts,” Piper added.

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Make purchases with a zero-interest credit card only. Any interest you pay for most credit card purchases you’re not paying off by the end of the month will negate any holiday sales savings.
Consider buying extra warranty coverage when the replacement cost for an item will be greater.
When car shopping, look for lower loan rates at local credit unions.

Westend61 | Westend61 | Getty Images

Eager to take advantage of Presidents’ Day sales, many shoppers may not realize how much holiday discounts on a range of items – from mattresses to home appliances and electronics to new cars – could really cost them.
“Consumers should look closely at the fine print and long-term financial impact of spending around the holidays,” said Nicole Elam, president and CEO of the National Bankers Association, a trade group representing minority-owned and women-owned financial institutions. “For two reasons – the impact of inflation during a pandemic era and interest rates – what appears to be a deal may not be.”

Shopping smart is essential

“I love a sale,” said certified financial planner Kamila Elliott, CEO and senior wealth advisor at Collective Wealth Partners in Atlanta. But, before making that purchase, she said, it’s important to answer three questions.
“You have to ask yourself: Do you need it? Do you love it? And, can you pay it off immediately?”
Before you charge the purchase to a credit card, remember this is one of the most expensive ways to borrow money. The annual percentage rate on a credit card is at an all-time high of nearly 20%.
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“If you don’t have the ability to pay off the credit card debt immediately, you’re not even getting the savings from the sale because you’ll be paying that interest over a month or several months,” said Elliott, who is also a member of CNBC Financial Advisor Council.

Consider these three strategies to help save money while you shop for holiday sales:

Use a 0% interest credit card: With this type of introductory offer, you may pay no interest for 12 to 18 months. Make minimum monthly payments (or a little more) over the promotional period. Your goal should be to fully pay for the purchase before the 0% interest period ends and the rate goes back up. Credit experts say that a cash-back rewards credit card with a 0% interest introductory offer may be an even better deal. Several cash-back cards give back a flat rate of 1.5% of the amount of your purchase no matter what you buy.
Compare replacement cost vs. warranty: An extended home appliance or electronics warranty may give you peace of mind, but read the contract to see what exactly it covers. How long does the warranty last? Who will make repairs? How quickly?Compare the warranty’s cost over time to the replacement cost of that item, Elliott said. It may be more cost-effective to put that “extra” money in a special, savings account earmarked for a new appliance if yours breaks. In some cases, if the product is something you really need immediately – like your smartphone or laptop – it may be worth it to buy the warranty, Elliott said.
Look for lower loan rates at a credit union: Many car brands offer Presidents’ Day deals that lower the purchase price or interest rates or make lease deals more attractive. Still, with the rise in auto loan rates, you pay much more than you had imagined – or can truly afford to – drive the new car off the lot. Shop around and check out credit unions for lower interest rates.The average price for a new car was over $47,000 at the end of last year. Monthly payments averaged over $700 with some consumers paying $1,000 or more. Instead of paying over 6% in interest on a 60-month car loan through a bank or dealership, check out rates at a credit union. You may find rates under 5%.

No matter what you’re buying this holiday weekend, research the product’s price history, said Consumer Reports shopping editor Mary Beth Quirk. 
“If it’s recently been on sale for a lot less, you have some wiggle room in terms of how soon you need the item, you may want to wait to see if it drops again,” she said.
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With rents at historic highs, deciding what you should spend on housing is an increasingly difficult task.
Housing experts have some strategies to figure it out.

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There’s often a chasm between theory and practice, what we should do and what we actually do. Yet, when it comes to the long-held advice for renters to not spend more than 30% of their income on housing, the target is increasingly impossible to even try to reach, experts say.
“The old 30% guideline is just unrealistic these days,” said Marc Hummel, a licensed real estate salesperson at Douglas Elliman in New York.

More often, Hummel said, tenants spend 40% of their income, or more, on housing. “With vacancy rates at record lows and rents near some of the highest on record, it’s become increasingly more difficult to spend less,” he said.
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Indeed, nearly 15 million renter households in the U.S. are considered cost-burdened, meaning they’re spending more than 30% of their income on rent and utilities. In some cities, the situation is especially dire. For example, in New York, a household with the area’s median income would need to pay nearly 69% of their earnings to rent the average-priced apartment, according to Moody’s Analytics.
There are major consequences to taking on a rent that eats up too much of your income, Hummel said. “Spending more on rent means less money for savings, retirement, family goals and less to pay for other debt obligations,” he said.
Housing is the single biggest financial area where people get trapped, according to personal finance blogger and author Ramit Sethi. “Which is why it’s so important to follow some general guidelines when you’re deciding how much you can afford,” said Sethi, who wrote “I Will Teach You To Be Rich.”

‘A week’s pay for a month’s rent’

Renters used to be advised to spend even less than 30% on housing, said Andrew Aurand, senior vice president of research at the National Low Income Housing Coalition. In 1969, the Housing and Urban Development Act required public housing residents to contribute just 25% of their earnings toward rent, Aurand said.
“That percentage stemmed from the Depression of the 1930s, when a common rule of thumb was ‘a week’s pay for a month’s rent,'” he said.

In practice, there are a variety of factors that should determine what’s the right share for a household to spend on their housing, Aurand said. For example, a married couple without children may be able to spend more on their rent than another married couple with the same income that does have kids.
One simple way to measure if your housing costs are affordable, Aurand said, is to calculate how much of your income is left over to cover your other bills once your rent is paid.
“After paying for their housing, does the household have adequate income to pay for their non-housing expenses?” he said. “If not, they are considered cost-burdened.”

30% not a hard and fast rule

Renters shouldn’t look at the 30% guideline as a hard and fast rule, said Allia Mohamed, co-founder and CEO of Openigloo, which allows renters to review buildings and landlords across the U.S.
“Every renter is different,” Mohamed said.
High-income renters, for instance, should often spend below that threshold, she said. “Just because you make $300,000 a year doesn’t mean you should rent an apartment for $7,500 just because you can,” she said.

After paying for their housing, does the household have adequate income to pay for their non-housing expenses?

Andrew Aurand
senior vice president of research at the National Low Income Housing Coalition

Meanwhile, a lower-income tenant may be able to direct more than 30% of their income to housing if they don’t have other large recurring expenses, such as loan payments, Mohamed said.
She advises renters to create a detailed budget of their monthly expenses, but to also include what they’d like to be setting aside for savings and/or investments. This can help them determine how much is left over for housing costs.

‘We can’t throw our hands up’

Too many people, especially in expensive cities, decide that finding an affordable rent is unrealistic and then end up spending way too much, Sethi said.
“We can’t throw our hands up at the biggest expense of all,” he said. “We have to develop a real strategy for handling it.”

Ideally, Sethi said, people should aim to spend no more than 28% of their gross income on their rent costs. (These include, he added, utilities, furniture, repairs, etc.)
“If you have no debt, you can stretch the number a bit,” he said. In certain expensive cities, Sethi added, “they might spend 30%, 32%, even 35%.”
However, he cautioned, “above that, you’re exposing yourself to serious risk” in the event you lose your job or experience another setback.

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Exterior of a redesigned Chipotle restaurant
Source: Chipotle Mexican Grill

With market conditions as uncertain as they are now, it may be prudent to have a long-term approach and turn to the experts for guidance.
Here are five stocks chosen by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performances.

Wynn Resorts

related investing news

Wynn Resorts (WYNN) reported a higher-than-anticipated adjusted loss per share for the fourth quarter. Nonetheless, investors were pleased with the management’s commentary about better times ahead, backed by continued strength in Las Vegas and the reopening of Macao following China’s stringent Covid lockdowns.
Deutsche Bank analyst Carlo Santarelli thinks that the future margin profile of Wynn Macau is “underappreciated.” Moreover, he expects the company’s financial leverage reduction to be “swift and screen well throughout 2023.”
“Given the resurgence of Macau, the continued strength and near term visibility in Las Vegas, and what we view as stability at Encore Boston Harbor, our estimates for 2023 and 2024 are higher across each of the 3 geographies,” Santarelli said.
Santarelli also noted that the stock’s valuation is reasonable, as the company is still in the early stages of the Macao recovery cycle. Santarelli reiterated a buy rating and raised his price target for Wynn to $128 from $106. (See Wynn Blogger Opinions & Sentiment on TipRanks)
Santarelli’s recommendation is worthy of consideration as he ranks 26th among more than 8,000 analysts tracked by TipRanks. Moreover, 67% of his ratings have been successful, generating a 21.7% average return per rating.

Chipotle Mexican Grill

Burrito chain Chipotle Mexican Grill’s (CMG) lower-than-anticipated fourth-quarter results reflected the impact of inflation on consumer spending. However, the company assured investors that transaction trends turned positive in 2023, setting its comparable sales growth estimate in the high-single-digit range for the first quarter.
Chipotle plans to further expand its footprint, which stood at 3,187 restaurant locations at the end of 2022. It aims to open 255 to 285 new locations in 2023.     
Baird analyst David Tarantino, who ranks 320 out of 8,346 analysts on TipRanks, lowered his 2023 earnings per share estimate following the lackluster fourth-quarter results and a lower-than-projected margin outlook for the first quarter. Nevertheless, Tarantino remains bullish on Chipotle.
“We came away with a view that management is taking the appropriate operational steps to drive structural improvements in traffic as 2023 unfolds, and we expect signs of progress on this front to help resolve the pricing/traffic debate and return the focus toward the significant economic value CMG can create via high-ROIC unit expansion,” Tarantino said
The analyst reiterated a buy rating on Chipotle stock and raised the price target to $1,900 from $1,800. Sixty-six percent of Tarantino’s ratings have generated profits, with each one bringing in a 10.6% average return. (See CMG Insider Trading Activity on TipRanks)

Meta Platforms

Social media behemoth Meta Platforms (META) is next on our list. Meta has rebounded this year after a disastrous run in 2022. Its problems last year were due to a slowdown in online advertising spend and the mounting losses of the company’s Reality Labs division — which includes its metaverse projects.  
Despite weak earnings, the stock spiked in reaction to recent results, as investors cheered Meta’s cost control measures and a $40 billion increase in its share repurchase authorization. Meta already had nearly $11 billion remaining under its existing buyback plan. 
Tigress Financial Partners analyst Ivan Feinseth highlighted that Meta’s “most valuable asset” is its huge and growing user base. Daily Active People or DAP (the number of people using at least one of the company’s core products — Facebook, WhatsApp, Instagram, or Messenger, every day) rose 5% to 2.96 billion in the fourth quarter.
Furthermore, Feinseth projects that Meta’s performance will be fueled by a “new, more cost-efficient data center structure” that is competent in supporting artificial intelligence (AI) and non-AI workloads.
Feinseth increased his price target for Meta to $285 from $260 and reiterated a buy rating as he believes it can outperform rivals due to its massive user base and the ability to generate significantly higher returns for advertisers.
Feinseth currently stands at #126 among over 8,300 analysts on TipRanks. Moreover, 65% of his ratings have been successful, with each generating a 13.5% average return. (See Meta Platforms Hedge Fund Trading Activity on TipRanks)

CyberArk Software

Digital transformation, the accelerated shift to the cloud and geopolitical tensions have triggered an increase in cyber threats, driving demand for cybersecurity companies like CyberArk (CYBR).
CyberArk, a leading cybersecurity company, has successfully transitioned from perpetual licenses to a subscription model — which has led to more reliable and predictable revenues.  
Mizuho analyst Gregg Moskowitz noted the impressive 45% growth in CyberArk’s annual recurring revenue (ARR) as of 2022’s end and ARR growth outlook in the range of 28% to 30% by the end of 2023. The analyst also pointed out that CyberArk ended 2022 with more than 1,300 customers generating over $100,000 in ARR, up 40% compared to the prior year.  
Moskowitz reiterated a buy rating on CyberArk stock and a $175 price target, saying, “We continue to view CYBR as a primary beneficiary of a heightened threat landscape that has amplified the need for privileged access and identity management.” He is also optimistic that CyberArk’s transition to a recurring revenue model will drive better financials.
Moskowitz holds the 236th position among more than 8,000 analysts on TipRanks. His ratings have a 58% success rate, with each delivering an average return of 13.8%. (See CyberArk Stock Chart on TipRanks)

Micron Technology

Semiconductor company Micron (MU) has been under pressure in recent quarters due to lower demand in several end-markets, particularly PCs. In the first quarter of fiscal 2023 (ended Dec. 1), the company’s revenue plunged 47% due to lower shipments and a steep decline in prices.
In response to tough business conditions, Micron has slashed its capital expenditure and has been taking initiatives to reduce costs. In December, the company announced that it would cut its workforce by nearly 10% in 2023 and suspend bonuses for the year. It has also suspended share repurchases for now.
Despite the ongoing challenges, Mizuho analyst Vijay Rakesh upgraded Micron to buy from hold and raised his price target to $72 from $48. Rakesh acknowledged that near-term headwinds remain due to high inventories, lower demand for PCs, handsets, servers and lower memory pricing. Nonetheless, he thinks that we are approaching a “cyclical bottom.”
Rakesh explained, “We believe memory sets up better for 2H23/2024E with supply/capex cuts, inventory correction behind, and a better pricing environment.”
Rakesh ranks 73 out of more than 8,300 analysts on TipRanks, with a success rate of 61%. Each of his ratings has delivered a 19.7% average return. (See Micron Financial Statements on TipRanks)

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The average participant account balance at Vanguard was $112,572 at the end of 2022, down 20% from the close of 2021.
The median balance was $27,376 at the end of last year, an annual drop of 23%.
Hardship withdrawals ticked up slightly, but remain a low share of all participant activity at 2.8%.

Olezzo | iStock | Getty Images

There’s no question 2022 was a rough year for investors.
With record-high inflation, economic uncertainty and aggressive interest rate hikes from the Federal Reserve to combat rising prices, stocks took a beating. All three of the major indexes had their worst year since 2008: The S&P 500 Index dropped 19.4%, the Dow Jones Industrial Average sank 8.8% and the Nasdaq Composite Index lost 33.1%.

Yet most 401(k) plan participants rode out the storm — and many increased their contributions, according to a new analysis from Vanguard that’s a preview of its annual How America Saves report.
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As of year-end 2022, the average participant account balance at Vanguard was $112,572, down 20% from a year earlier, the research shows. The median balance — half were above, half below — was $27,376 at the end of the year, a 23% decrease.
At the same time, though, 39% of participants’ deferral rate — the portion of their paycheck directed to their 401(k) account — climbed higher, compared with 9% of investors who decreased their contributions. While many initiated the increase on their own, more than half of the boosts came from the plan’s yearly automatic escalation.
“Despite economic headwinds, we were pleased to see that participant behavior in retirement plans remained in line with previous years, and most participants continued to maintain a long-term view,” said Dave Stinnett, head of strategic retirement consulting at Vanguard.

Trading remained low among 401(k) investors

Additionally, just 2% of the investors in target-date funds made any exchanges (59% of participants are in those funds). Among those not in target-date funds or other professionally managed allocations, only 6% did any trading, the lowest point in 20 years, according to Vanguard.
And, although hardship withdrawals ticked up, they remain a small share of all participants. Last year, 2.8% took such a withdrawal, compared with 2.1% in 2021.
“The uptick … may have been driven by individuals’ personal finance situations, with U.S. households facing some tough economic challenges in 2022,” Stinnett said. “Several government moves since 2018 have also loosened the rules for taking the distributions, so we believe that may have also been a factor in the increase.”

Inflation, at 6.4% over the last year, remains a problem

Meanwhile, economic headwinds remain. The latest inflation reading showed a 6.4% increase over the last 12 months — which remains far above the Fed’s target rate of 2%. This suggests additional rate hikes are on the way, which makes the cost of borrowing more expensive for consumers and businesses.

“The big question around inflation is can the Fed get that under control without costing people their jobs and causing further declines in the market,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.
While all three of the major stock indexes have trended upward since early January, it’s impossible to know with certainty whether the higher momentum will continue. Through midday Friday, the S&P has risen about 6% in 2023, the Dow has climbed 1.7% and the Nasdaq has gained nearly 13%.
“We’re starting out the year on a positive note … which is a nice reprieve from the carnage that was 2022,” Boneparth said.

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