• Market Crumbs

401(k)s Outperformed In The First Quarter


Image via Chris Liverani on Unsplash

A few months ago Market Crumbs wrote about the record number of 401(k) and IRA millionaires. At the end of 2019, there were 233,000 people with $1 million or more in their 401(k) and 208,000 people with $1 million or more in their IRA, according to Fidelity.


With the market consistently setting new all-time highs last year on hopes of a trade deal between the U.S. and China, as well as accommodative monetary policy, even those who didn't see their accounts surpass $1 million benefited. The average 401(k), IRA and 403(b) balance each hit record highs as well.


With the S&P 500 falling 20% in the first quarter—its worst since the financial crisis, many of those millionaires are no longer millionaires.


Fidelity released its latest quarterly analysis of retirement savings trends on Friday, which surprisingly showed the average account actually outperformed the broader market.


The average 401(k) balance fell 19% during the first quarter to $91,400, while the average IRA balance dropped 14% to $98,900. The average 403(b) account balance fell 19% during the first quarter to $75,700. In a testament to "buy and hold" investing, the average balance in all three account categories is notably higher than it was ten years prior at the end of the first quarter in 2010.


"Given the unprecedented market volatility this quarter, it’s not surprising that account balances were impacted, although declines were less than the overall market decline," president of Workplace Investing at Fidelity Investments Kevin Barry said. "It was encouraging to see that many investors stayed the course and did not make drastic changes to their asset allocations, with some investors increasing contributions to their retirement accounts."


The unprecedented drawdown in the first quarter didn't scare people away from opening new investment accounts. New IRA account openings jumped 36% from the first quarter of last year to a record 407,000 accounts. IRAs are particularly popular among millennials, with contributions among the group increasing 41% from the same period last year, while the amount contributed by millennials increased 64%.


Investors generally sat on their hands and didn't take much action rebalancing their accounts during the quarter. Only 7.3% of accounts made a change to their 401(k) allocation during the quarter, with 60% of them only making one change to their allocation.


Baby Boomers, whose investments are vital to their income in their later years, also didn't take much action during the selloff. Only 9.9% of Baby Boomers made a change to their 401(k) allocation during the quarter, with most moving into conservative investment options.


Despite more than two months left in the second quarter, markets have staged a strong rebound to start the quarter. While no one knows where the market will go for the remainder of the quarter, the next quarterly analysis from Fidelity should provide insight into whether investors used the bounce to take off some risk or stuck to a "buy and hold" strategy.


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