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401(k) Investors React Quickly to Market Volatility

While most participants in 401(k) plans trade very little -- fewer than 1% make transactions in any given month, according to Greg Ellis, a senior vice president with Morley Capital - those who do trade tend to do so frequently, and, when the financial markets turn volatility.

According to data compiled by Hewitt Associates in surveying 1.4 million 401(k) account records, 83% of the transfers of money that were made during the month of October 1998 went into stable value funds, Ellis told the SVIA 1999 National Forum. October 1998 was, of course, a month in which 401(k) investors were getting statements reflecting the bad news that the average domestic stock mutual fund had produced a loss of 15% in the just-completed third quarter.

After watching the market regain much of its third-quarter loss during the month of October, 401(k) investors did an about face: 66% of all transfers that month went into large-cap equity funds. Of all money transferred out of existing investment options, 59% was taken from stable value funds.

By the end of the year, investors appeared to be nervous once again about the market's gyrations. In the transfers made during the month of December, Ellis said, 91% of the money went into stable value funds.

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