401(k) trading spikes amid correction

There have been three days in recent history when trading in 401(k) plans was 11 times higher than average – and one of those days was Thursday.

Since 2008, the other days that saw such high levels of trading were Jan. 22, 2008, and Feb. 5, 2018, according to data from Alight Solutions, which tracks participant trading within its record-keeping business.

Thursday, which marked the fourth consecutive day of major losses in the stock market, saw the second-highest trading levels in 401(k) plans since 2008, according to the company. Amid concerns globally about the spread of the coronavirus, the Dow Jones Industrial Average and S&P 500 both closed more than 4% lower then they did on Wednesday.

“Even in the depths of the financial meltdown in October 2008, we didn’t see this type of [trading] abnormality,” a spokesman for Alight said in a statement.

The first four days of the week all saw high levels of trading, though Thursday’s level was pronounced, with nearly 0.2% of 401(k) assets being moved, according to the firm. Plan participants generally moved away from equities.

That activity Thursday could hint at more to come. Although many investors have experienced full market cycles, nowadays they have smartphones, something that was much less common at the start of the recession. Plan participants have up-to-the-minute information and the ability to move their money more quickly than ever.

That contrasts with times when participants received 401(k) statements just once a year and could only rebalance their accounts quarterly, said Jamie Greenleaf, principal at Cafaro Greenleaf. While bouts of 401(k) trading usually involve only a small portion of accounts and balances, it can be detrimental to those who panic and sell low.

“We have way too much access to information too quickly, and so we make emotional decisions as opposed to factual and practical ones,” Ms. Greenleaf said. “Yesterday, people probably pulled the trigger who shouldn’t have, and they may regret it.”

“The reality is we have some bargain buying right now, and the big players might come in and do that, and then you’ve missed the upside,” she said.

Her retirement adviser firm has fielded some questions so far from plans and participants and is making a short webinar to address the volatility, Ms. Greenleaf said.

“It’s a great opportunity to buy. But if you’re close to retirement, this might be kind of a wake-up call and a time to recheck your goals,” she said.

At Empower Retirement, the second-biggest record keeper by number of plan participants, the number of calls fielded by customer service was up 30% on Thursday compared to Wednesday, and traffic on the company’s website was up by 40%, CEO Edmund Murphy said.

Empower did not see a notable increase in 401(k) trading, Mr. Murphy said; participants were mostly checking their account balances or looking for information about volatility.

“The retail investor has learned from the past … When they’ve stayed the course, it’s been the best approach in the long term,” he said. “We always caution people about market timing, because it just flat-out doesn’t work.”