Self-Directed 401(k) Balances Dipped in Q3: Schwab


What You Need to Know

  • A report from Charles Schwab found that self-directed 401(k) balances fell from last year and last quarter.

  • Trading volumes were lower from last quarter, the report also said.

  • Participants held an average of 12.6 positions, with Gen Xers constituting nearly half of SDBA participants.

Third-quarter retirement plan participant account balances in self-directed brokerage accounts fell by 19.8% to an average $273,412 from $341,068 a year ago, and were down by 3.6% from $283,485 last quarter, Charles Schwab reported Wednesday.

SDBAs are brokerage accounts within retirement plans, including 401(k)s and other types of retirement plans, that participants can use to invest retirement savings in individual stocks and bonds, ETFs, mutual funds and other securities that are not part of their retirement plan’s core investment offerings.

The quarter’s SDBA indicators reflected another volatile period with some recovery in July and August before markets retracted in September for a third consecutive quarter of negative returns amid high inflation, increasing interest rates, rising recession risks and ongoing geopolitical unrest.

According to the report, trading volumes were lower from last quarter, dropping to an average of 10.6 trades per account from 11.2. Participants made the most trades in their equities holdings, followed by ETFs and mutual funds.

Participants held an average of 12.6 positions, little changed from a year ago and last quarter. Gen Xers constituted 46% of SDBA participants, followed by baby boomers at 29% and millennials at 19%.

Asset Allocation

Equities held 33.4% of participant assets, down from 36% last year. The largest equity sector holding was information technology at 28.8%, slightly lower from 29.1% last quarter.

Mutual funds were investors’ second-largest holding at 28.4%. Large-cap stock funds had a 33.7% allocation, taxable bond funds 19.7% and international funds 12.9%.

ETF investors allocated 51.7% to U.S. equity in the third quarter, 14.1% to fixed income, 12.7% to international equity and 11.3% to sector ETFs.

The largest asset net flow class was ETFs, followed by fixed income and equities.

Investing Behavior Across Generations

Boomers ended the third quarter with the largest balance of $437,280, down from $452,381 last quarter. Gen Xers followed with $246,206 and millennials with $83,408, both balances down from last quarter.

All three generations had similar equity holdings, topped by Apple, Tesla, Amazon and Microsoft.

Top ETF holdings were also similar across generations: Vanguard Total Stock Market, Invesco QQQ Trust, SPDR S&P 500 ETF, Vanguard S&P 500, Vanguard and Schwab US Broad Market.

The Schwab S&P 500 Index Fund was the top mutual fund holding, followed by the Schwab Total Stock Market Index Fund.

Millennials and Gen Xers had higher percentages of mobile trades than boomers: 32% and 26%, versus 23%. Additionally, the three generations had a very similar percentage in cash: boomers 15.1%, Gen Xers 14.3% and millennials 14.8%.

Advised vs. Non-Advised Accounts

The third-quarter average participant balance for advised accounts fell to $435,604 from $460,376 last quarter, while non-advised accounts were also down from last quarter to $233,875 from $240,974. Gen Xers had the most advised accounts at 50%, millennials the fewest at 15.8%.

Investors with advised accounts had a higher number of average trades than did those with non-advised accounts at 15.6 vs. 9.4. Overall, the trading volume was similar to last quarter and lower than 2021.

Participants who used advisors showed a more diversified asset allocation mix and had a lower concentration of assets in particular securities, with Apple being the top security for everyone. But advised participants had only 9.3% of their equity assets with Apple, while non-advised participants had 13.3%.

Advised participants also had a lower percentage in cash, similar to last quarter: 6.4% vs. 18.5% for non-advised participants.

Likewise for ETF holdings. Advised participants exhibited more balance among all the holdings, with no more than 3.7% of any one ETF.