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.