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Self-Directed 401(k) Balances Fell 10% in Q4: Schwab

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The market correction that occurred during the fourth quarter of 2018 weighed on retirement plan participants who have a self-directed brokerage account, according to Charles Schwab’s SDBA Indicators Report.

“The fourth quarter of 2018 brought a sharp downturn for many markets on the concerns about slowing global growth,the effects of Fed interest rate increases, trade disputes, and a partial government shutdown,” the report states. “… As a result, the average account balance for all participants in [Schwab’s self-directed brokerage account] was down.”

The average self-directed brokerage account (SDBA) balance fell to $246,153 — a decline of 10.6% from the third quarter of 2018 and 6.3% year-over-year, according to the report.

SDBAs are brokerage accounts within retirement plans that participants can use to invest in stocks, bonds, exchange-traded funds, mutual funds and other securities that are not part of their retirement plan’s core investment offerings.

The report includes data collected from approximately 137,000 retirement plan participants who currently have balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Account.

According to the Schwab data, mutual funds continued to hold the highest percentage of participant assets at approximately 37%, the same as the fourth quarter of 2017. Allocations to equities remained at 28%, and exchange-traded funds (17%), cash (15%) and fixed income (3%) rounded out participants’ portfolios.

Despite the high market volatility experienced in the fourth quarter, participants averaged just 2.2 trades per month. On average, participants held approximately 10 positions in their SDBA, which was very similar to last year and the same as last quarter, the report states.

The data also reveals specific sector holdings within each investment category.

With regard to mutual funds, large-cap funds represented the largest allocation at approximately 28%, followed by taxable bond (21%), international (16%), hybrid (12%) and small-cap (12%) funds.

Looking at the equity sector, Apple (AAPL) was the top overall equity holding, representing approximately 9% of the equity allocation of portfolios. Amazon (AMZN) was the second-largest equity allocation, representing approximately 6.5% of portfolios, which was an increase of 3% since the fourth quarter of 2017. Berkshire Hathaway (BRKA) (3%), Microsoft (MSFT) (2%) and Facebook (FB) (1.75%) rounded out the top five equity holdings.

Among exchange-traded funds, investors allocated the most dollars to U.S. equity (48%), international equity (16%) and U.S. fixed income (15%).

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