Most 401(k) Participants Staying Put Amid Volatility: Morningstar

Recent market volatility not surprisingly has caused many 401(k) investors to wonder what they should be doing with their portfolios.

“The answer for most people, probably, is not much,” according to a report released this week by Morningstar.

This is what happened in the first quarter: Equity markets plummeted 20% and, at one point, were down more than 30%. Median 401(k) balances declined 11.2%, with participants who had more aggressive portfolios and larger balances suffering the largest declines, according to the report.

Morningstar researchers examined potential allocation changes during the first quarter for 635,116 401(k) participants and enrollment decisions of 15,985 participants.

They found that although only 5.7% of participants enrolled in a 401(k) plan as of Dec. 31 had changed their portfolio allocations during the first quarter, the rate of change varied considerably based on how the participant was invested.

Whereas 10.8% of participants self-directing their accounts made a change, just 2.4% of participants using a target date fund, 1.8% of participants who opted into managed accounts and 1.3% of participants who were defaulted into managed accounts did so.

Participants who adjusted their portfolios changed equity levels by 18.9%, on average, with an aggregate decline of 9.4%. However, most portfolio changes were relatively small, with about half of participants changing equity levels by less than 10%.