Self-Directed Investors Favor Equities, Especially Tech Stocks

Overall investment behavior among self-directed brokerage account (SDBA) participants stayed steady throughout the third quarter of 2021, with the average account balance across all participants in the Schwab Personal Choice Retirement Account (PCRA) program seeing a 12.8% increase year-over-year.

Despite the strong year-over-year growth, SDBA owners saw a 2% decrease in asset values relative to the second quarter of 2021, underscoring the fact that it has been a challenging year for investors. Based on worries about inflation and Federal Reserve policy decisions, market watchers say it would be natural to see a market correction heading into the end of the year, though that fate is far from certain.

According to Charles Schwab’s third quarter SDBA indicators report, trading volumes were similar to trades from one year ago and slightly lower than last quarter, at an average of 13.1 trades per account compared with 13.8 in the second quarter. Participant holdings also remained similar to last quarter, with a slight increase in cash holdings. The highest allocation of participant assets was in equities (36%). Mutual funds were the second largest holding (30%), followed by exchange-traded funds (ETFs) (20%), cash (13%) and fixed income (1%).

Large-cap stock funds had the largest allocation at 34.06%, higher than last year. They were followed by taxable bond funds, at 19.24%, and international funds, at 15.26%. Overall, self-directed investors’ allocations were similar to last year and last quarter.

The largest equity sector holding was information technology (IT) at 29.81%, slightly up from 29.33% last quarter. Notably, the prevalence of Apple stock was about the same this quarter, at 10.6%, and Apple remains the largest individual stock holding in the PCRA program. Other equity holdings remained similar to last quarter and to a year ago, with the exception of Grayscale Bitcoin, which is now a top 10 holding, a status achieved both this quarter and last. The consumer discretionary category comprised 20.49% of holdings, while health care was third at 9.7%, followed by communication services at 9.2% and financials at 8.28%.

U.S. equity ETFs—including large-cap, mid-cap and small-cap funds—continued to be the top ETF holding in PCRA accounts, followed by sector ETFs, international equity ETFs and U.S. fixed-income ETFS.

The Baby Boomer generation ended the quarter with the largest balance, at $526,193, which was down from $532,388 last quarter. They were followed by Generation X at $301,686 and Millennials at $101,670. All of these balances were down from last quarter.

Millennials and Gen X again had the highest percentage of mobile trades, with Baby Boomers following not far behind. All three generations had a very similar percentage of assets in cash, with Baby Boomers at 12.8%, Gen X at 12.33% and Millennials at 11.44%. These are all a slight increase from last quarter.

Gen X had the most PCRA advised accounts, at 48.5%, and Baby Boomers were lower, at 34.7%, while only 13.9% of the Millennials chose to use an adviser. The average participant balance for advised accounts was down to $542,365 from $550,127 last quarter, while non-advised accounts were also down from last quarter at $294,215, from $302,330. Those with advised accounts had higher average trades, at 16.1 total versus 12.3 for non-advised accounts. Overall, the trading volume was lower compared with last quarter and very similar compared with last year.

The full survey is available here.