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How Self-Directed Retirement Savers Invested in Q4: Schwab

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Retirement plan participant account balances in self-directed brokerage accounts averaged $352,764 at the end of the fourth quarter, a 6.4% year-over-year increase and a 3.4% increase from the third quarter, Charles Schwab reported this week.

SDBA account holders can use their brokerage accounts to invest retirement savings in individual stocks and bonds, ETFs, mutual funds and other securities that are not part of their retirement plan’s core investment offerings.

During the fourth quarter, investors remained resilient in a historically volatile year, the report noted. November began with fears over new COVID variants, inflation and Federal Reserve asset tapering, but as investor concerns subsided and the economy proved stable overall, their balances ended the quarter higher.

Participant holdings remained similar to the fourth quarter of 2020. Thirty-seven percent of participant assets were in equities versus 35% in 2020; 30% in mutual funds versus 31%; 21% in ETFs versus 18%; 11% in cash versus 14%; and 1% in fixed income versus 2%.

Schwab based its report on data collected from some 178,000 retirement plan participants who currently have balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Account.

Other Report Highlights

The report said advised accounts held average account balances of $558,470, compared with $304,164 in non-advised accounts. Forty-nine percent of Gen X investors had advised accounts, followed by 34% of baby boomers and 15% of millennials.

Gen X made up approximately 45% of SDBA participants in the fourth quarter, boomers 31% and millennials 19%.

Boomers’ SDBA balances averaged $548,658, compared with $315,574 for Gen X and $106,408 for millennials.

Quarterly trading volumes were slightly lower than a year ago, according to the report, down to 13.3 trades from 13.9, and similar to last quarter’s 13.1 trades.

On average, participants held 12.5 positions in their SDBA accounts at the end of last quarter, a number consistent with the third quarter and up from 11.4 in the 2020 fourth quarter.

Here’s a look at specific fourth quarter asset class and sector holdings within each investment category:

Mutual Funds 

Large-cap funds had the largest allocation at approximately 35.1% of all mutual fund allocations, up from 31.9% last year. Taxable bond  followed with an 18.5% allocation and international funds with a 14.9% allocation.

Stocks

The largest equity sector holding was information technology at 31.8%, up slightly from 29.8% last quarter and similar to last year. 

The top five equity holdings remained the same as last quarter:

  • Apple, 11.9% 
  • Tesla, 8.5%
  • Amazon, 4.5%
  • Microsoft, 3.2%
  • NVIDIA, 2.7%

ETFs

Among ETFs, investors allocated 51.5% to U.S. equity, 13.4% to sector ETFs 12.8% to U.S. fixed income and 12.4% to international equity. 

Year over year, investors increased U.S. equity allocations by 2.3 percentage points and decreased fixed income allocations by 2.2 points.

(Photo: Gorodenkoff Productions OU/Adobe Stock)