Self-Directed Retirement Investors In Brokerage Accounts Stay in Equities Despite Volatility

Retirement investors who invest some 401(k) retirement assets through a self-directed Charles Schwab brokerage account saw their average account balances drop 3.55% in the third quarter of 2022 that ended September 30 compared to Q2 2022, and balances were down 19.84% year-over-year, new data shows.

The average account balance across all participant accounts finished at $273,412 for Q3, the Charles Schwab SDBA Indicators Q3 2022 Report found. That is lower than the $283,485 average value at the end of Q2 2022, and far lower than the average balance of $341,068 for 2021.

“Stocks rallied early but retracted their gains to close out a third consecutive quarter of negative returns; from its August 16 high to September 30, the S&P 500 Index declined nearly 17%,” the report’s asset balance summary stated.

SDBAs are brokerage accounts within retirement plans, including 401(k)s and other types of retirement plans, that participants can use to invest retirement savings in individual stocks and bonds, as well as exchange-traded funds, mutual funds and other securities that are not part of their retirement plan’s core investment offerings.

Equities remained the largest holding for participants in Q3 2022, at 33.43% of assets, with mutual funds at 28.4% and exchange-traded funds at 20.96%, the report found. Cash and equivalents comprised 14.74%, with fixed Income just 2.51%, data showed.

“Overall, participant holdings remained similar to last quarter, with an increase in fixed income,” stated the report asset balance summary.

The largest equity sector holding was information technology at 28.8%, the report found. The top equity holdings remained Apple at 12.5%, Tesla 9.6%, Amazon 4.8% and Microsoft 3.2%.

Investors allocated the largest portions of fund flows to large-cap stock funds at 33.7%, followed by 19.7% for taxable bond funds and international funds at 12.9%, according to Schwab.

ETF investors continued to push assets into U.S. equity at 51.7% of assets, followed by fixed income at 14.1%, international equity at 12.7% and sector ETFs at 11.3%, data showed.

Additional report findings:

• Trading volumes were slightly lower, at an average of 10.6 trades per account, compared to 11.2 trades per account in Q2 2022 and in 2021.
• Advised accounts held higher average account balances compared to non-advised accounts, $435,604 vs. $233,875.
• Gen X had the most advised accounts at 50.0%, followed by Baby Boomers at 30.7% and Millennials at 15.8%.
• Gen X made up approximately 46% of self-directed brokerage account participants, followed by Baby Boomers at 30% and Millennials at 19%.
• Baby Boomers had the highest self-directed brokerage account balances at an average of $437,280, followed by Gen X at $246,206 and Millennials at $83,408.
• On average, participants held 13 positions in their self-directed brokerage accounts at the end of Q3 2022, consistent with Q2 and similar to last year.

The SDBA Indicators Report includes data collected from approximately 186,000 retirement plan participants who currently have balances between $5,000 and $10 million. Data is extracted quarterly on all accounts that are open as of quarter-end and meet the balance criteria.