Schwab Report: Self-Directed 401(k) Investors Favored Mutual Funds in First Quarter; Account Balances Up 23% Year-Over-Year

According to Charles Schwab’s SDBA Indicators ReportTM, an industry-leading benchmark on retirement plan participant investment activity within self-directed brokerage accounts (SDBAs), plan participants invested the largest percentage of new assets into mutual funds in the first quarter of 2018, followed by exchange-traded funds, equities and fixed income.

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

According to the Schwab data, mutual funds continued to hold the highest percentage of participant assets with approximately 38 percent, an increase of 1 percent from last year. Allocations to equities remained the same at 29 percent, and exchange-traded funds (17%), cash (14%), and fixed income (2%) rounded out participants’ portfolios. Despite the high market volatility experienced in the first quarter, participants averaged just 2.6 trades per month, a slight increase from the fourth quarter of 2017.

Allocation Trends

The data also reveals specific sector holdings within each investment category:

• With regard to mutual funds, Large Cap funds represented approximately 28 percent of all allocations, followed by Taxable Bond (20%), International (17%), Hybrid (13%) and Small Cap (12%) funds.
• Apple (AAPL) was the top overall equity holding, representing approximately 9 percent of all portfolios. As a result, Information Technology (30%) was the largest sector holding for individual securities, followed by Consumer Discretionary (15%) and Financials (13%). Utilities, Real Estate and Telecommunication Services represented the smallest allocations, each accounting for less than 2 percent of participants’ portfolios.
• Among exchange-traded funds, investors allocated the most dollars to U.S. Equity (47%), International Equity (18%) and U.S. Fixed Income (13%).

Report Highlights

The average SDBA account balance for all participants was $261,900, representing growth of 23.4 percent from the first quarter of 2017. Additional findings include:

• 18.7% of SDBA accounts were managed by an independent investment advisor. The average balance of advised accounts was $434,513.
• On average, participants held approximately 10 positions in their SDBA.
• Baby Boomers made up approximately 42% of SDBA participants, followed by Gen X (40%) and Millennials (11%). All three generations had very similar equity holdings, with Apple (AAPL), Amazon (AMZN), Facebook (FB) and Berkshire Hathaway (BRK.B) coming in at the top.
• The average age of an SDBA participant was 51 years old. 60% of participants were male and 40% were female.

About the SDBA Indicators ReportTM

The SDBA Indicators Report includes data collected from approximately 137,000 retirement plan participants who currently have balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Account®. Data is extracted quarterly on all accounts that are open as of quarter-end and meet the balance criteria.

The SDBA Indicators Report tracks a wide variety of investment activity and profile information on participants with a Schwab Personal Choice Retirement Account (PCRA), ranging from asset allocation trends and asset flow in various equity, exchange-traded fund and mutual fund categories, to age trends and trading activity. The SDBA Indicators ReportTM provides insight into PCRA users’ perceptions of the markets and the investment decisions they make.

Data contained in this quarterly report is from the first quarter of 2018, and can be found at www.schwab.com/sdbaindicators, along with prior reports.

About Charles Schwab

At Charles Schwab, we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.

More information is available at www.aboutschwab.com. Follow us on Twitter, Facebook, YouTube, and LinkedIn.

Disclosures

Through its operating subsidiaries, The Charles Schwab Corporation (NYSE: SCHW) provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com. (0518-8U79)

This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security.

Schwab Personal Choice Retirement Account® (PCRA) is offered through Charles Schwab & Co., Inc. (member SIPC), the registered broker/dealer, which also provides other brokerage and custody services to its customers.

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