- Fidelity recently published a report about how some individuals have more investments in stock than what is recommended. Here are the details.
Fidelity recently published a report about how some volatility has been driving slight dips in average account balances. After analyzing 30 million retirement accounts, Fidelity noticed an average 401(k), IRA, and 403(b) accounts decrease slightly in Q3 2019.
The average 401(k) balance dipped to $105,200 — which is less than a 1% decrease from $106,000 in 2019. And the year-over-year average balance is down just over 1% from a record high balance of $106,500 in Q3 2018. Plus the average IRA balance dropped slightly to $110,200 — which is less than half a percentage point from last quarter and less than 1% lower than the $111,000 balance one year ago.
And among the participants who have been in their 401(k) plan for 10 years straight, the average balance reached a record of $306,500 thus topping the previous high of $306,00 from Q3 2018. Among the workers saving in a 403(b)/tax exempt account, the 10-year continuous balance reached $179,000, which is more than 4 times the average balance for this group in Q3 2009.
Fidelity also pointed out that the number of workers contributing to a Roth 401(k) increased to 1.02 million in Q3, a nearly ten-fold increase from the 109,000 workers who contributed to a Roth 401(k) in Q3 2009. And nearly half (485,000) of the workers contributing to a Roth 401(k) are millennials.
“Although the stock market’s performance had a slight impact on account balances, we continue to see positive investing and savings behaviors among people saving in Fidelity retirement plans,” said Kevin Barry, president of Workplace Investing at Fidelity Investments in a statement. “While market swings like the kind we experienced in Q3 can be unnerving, it’s encouraging to see that most retirement savers didn’t have an emotional reaction and did not take any steps that could harm their long-term savings efforts.”
Fidelity warned that workers may have too much stock in their accounts thus exposing their savings to unnecessary risk. In Fidelity’s Q3 analysis, it was found that many 401(k) account holders had stock allocations higher than those recommended for their age group. To learn more, Fidelity compared average asset allocations to an age-based target-date fund and discovered nearly a quarter (23.1%) of 401(k) savers still have a higher percentage of equities than recommended, including 7% who are 100% equity. And among Baby Boomers, the over-allocation of stock was even higher as 37.6% have too much equity, including 7.9% who are in 100% equities. There are 5% of Boomers who have zero exposure to equities in their 401(k).
In its analysis, Fidelity also found that asset allocation among workers saving in 403(b)/tax exempt accounts were slightly more on target. As of Q3, 81% have the suggested level of stock allocations recommended for their age group and only 11% with stock allocations higher than those recommended for their age group.
“While the market’s performance over the last few years has had a positive effect on many retirement account balances, it may have also contributed to some individuals having more stock than is recommended. Maintaining the right balance of stocks, bonds, and cash can help ensure investors are not exposing their savings to any unnecessary risk, especially if the market was to trend downward,” Barry added.
