Keep Keeping Your Distance: An Updated Look at 401(k) Participant Behaviors During the COVID-19 Crisis
Self-directed individuals made more changes than investors using professionally managed solutions.
When markets tumbled, volatility reached unprecedented levels, and interest rates hit record lows in early 2020, it made sense that investors may have questioned what they should be doing with their portfolios. But what did their behavior look like later in the year--after the initial shock of the year’s unexpected turmoil wore off?
In a previous paper, we explored how market volatility influenced the behavior of 401(k) participants during the first quarter of 2020. In our new paper, “Keep Keeping Your Distance,” we expand upon this research to include data through the entire 2020 calendar and assess what, if anything, has changed during the latter part of the year.
4 Key Findings on 401(k) Participant Behavior
Overall, while we found that participants continued to make small changes to allocations throughout 2020, participant activity was more muted during the last three quarters of 2020 compared with the first quarter.
Investors in Professionally Managed Investment Options Were More Likely to Stick Around
Overall, this analysis demonstrates that professionally managed investment options, such as target-date funds and retirement managed accounts, were relatively “sticky” during the recent period of market volatility, especially when compared with the decisions of participants self-directing their accounts. Additionally, participants who were able to “stay the course” likely had better performance than those who transacted. Since many participants, especially new participants, appear to have moved away from professionally managed options during 2020, plan sponsors should consider strategies to get these participants back into a professionally managed investment option, such as an investment re-enrollment.
This analysis suggests the wide adoption of professionally managed investment options inside defined-contribution plans has helped participants “stay the course” during the recent period of market volatility, especially when compared with participants who were self-directing their accounts. This inaction likely also resulted in higher performance.
Diana Velasquez leads consultant relations for the Morningstar Retirement Solutions product group.
Morningstar Investment Management LLC is a registered investment adviser and subsidiary of Morningstar, Inc. The information is the proprietary material of Morningstar Investment Management. Reproduction, transcription, or other use, by any means, in whole or in part, without the prior written consent of Morningstar Investment Management, is prohibited.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.