Behind the data: a look at 401(k) investor activity in a bear market

It’s been over two weeks since the U.S. major market indexes dropped 20% from their previous peaks and officially entered a bear market. During such a stressful period of time, we know many people are reaching out to their financially savvy friends and coworkers. Asking what they’re doing with their retirement portfolios. Wondering what they should do with their own 401(k). At Guideline, we were wondering what people were doing with their retirement investments, too. Were Guideline 401(k) participants changing investment strategies? Or checking their account balance more frequently? We looked at the data and the results were a little surprising and very reassuring.

Tl:dr, they were standing pat.

We analyzed a sample of 100,000 Guideline 401(k) accounts from March to date 2020. During one of the worst performing episodes for the US stock market in history, merely 2% of the participants changed their portfolios. Which means, 98% of the participants left their portfolios alone. Historically, April is the month with the most account activity, likely due to reevaluating one’s financial situation around Tax Day. In fact, 5% of participants changed their portfolios in April 2019.

So far, Guideline’s user login activities are well within normal fluctuations, too. Historically, the end of the year, beginning of the year, and April are the periods with most logins—~60% of participants log into their accounts during these times. Between March 1 and March 23, 2020, ~30% of the participants logged into their accounts. If we extrapolate it to the entire month of March, we expect it to remain lower than the historical high of 60%.

As the global stock markets continue to navigate through choppy waters in the coming weeks and months, we plan to monitor this data—including any changes in deferral rates—to better understand our participants’ activity and confidence levels.

Our investment philosophy revolves around having a broadly diversified portfolio and the discipline to stick with it for the long run—whether the market is a bull or a bear. We see 98% of our 401(k) investors staying the course as a really positive sign. We wrote about this last week, and our message holds true: avoid looking at your retirement accounts, take a few deep breaths, and keep contributing through your regular payroll deductions. Right now, we believe inaction is the action we can take.

Methodology

We analyzed anonymized data of 100,000+ Guideline 401(k) participants who invest in their employer-sponsored retirement plans managed by Guideline. For each month we counted the number of participants who changed their portfolio or logged into their accounts, and divided by the number of participants at Guideline. The last data point was from March 23, 2020, when we wrote the blog post.