Self-directed 401(k) balances jump in Q1, with Apple stock a top participant pick: Schwab

Account balances within self-directed brokerage accounts experienced a sharp increase in the first quarter of 2024, even as participant holdings remained relatively steady, according to Charles Schwab’s SDBA Indicators Report.

The report showed that the average account balance across all participant accounts stood at $328,239 in the first quarter of 2024, which was an almost 10% gain over the same period of 2023, when it was $298,543, and a 5.8% increase from the fourth quarter of 2023, when it hit $310,400.

SDBAs are brokerage accounts within workplace retirement plans that allow participants to invest their retirement savings in individual stocks and bonds, exchange-traded funds, mutual funds and other securities that are not part of their retirement plan’s core investment offerings.

The report showed that participant holdings in the first quarter of 2024 were similar to the fourth quarter of 2023 with equities remaining the largest holding at 34.1%. Information Technology was the largest sector within equities at 34.6%, and top holdings were Apple (9.7%), Nvidia (8.2%), Amazon (5.2%), Tesla (4.9%) and Microsoft (4.1%). Consumer Discretionary was the next highest sector at 16.0%, and Financials was third at 11.0%.

Participants held an average of 11.8 positions in their SDBAs at the end of first quarter of 2024, the same as the fourth quarter of 2023 and slightly lower than the first quarter of 2023, according to the report. Trading volumes averaged 12.3 trades per account compared to 9.7 trades per account in the fourth quarter of 2023 and similar to trading volumes from the first quarter of 2023. Participants made the most trades in equities holdings, followed by ETFs and mutual funds.

Mutual funds followed as the second largest holding at 28.4%. Large-cap stock funds were most popular by far at 34.2% with money market funds (15%) and taxable bond funds (14.4%) trailing behind. The Schwab S&P 500 Index fund was the top Mutual Fund holding, followed by the Schwab Total Stock Market Index fund.

ETFs were next among holdings with 24.4% of participant assets. Within that category, U.S. equity was targeted with the most dollars (51.7%), followed by U.S. fixed income (12.8%), international equity (11.9%) and sector ETFs (9.5%). Vanguard Total Stock Market, Vanguard S&P 500, Invesco QQQ Trust, SPDR S&P 500 ETF and Schwab US Dividend and Broad Market were the top ETF holdings.

Finally, 8.1% of participant assets were dedicated to cash and equivalents and another 5.1% were held in fixed income.

The report found that advised accounts held much higher average account balances when compared to non-advised accounts – $526,997 to 286,431.

“Those participants who used advisors, displayed a more diversified asset allocation mix and had a lower concentration of assets in particular securities, with Apple being the top one for everyone; advised participants only had 6.48% of their equity assets with Apple, while non-advised participants had 10.39%,” according to the report. “Advised participants also had a lower percentage in cash, similar to last quarter: 3.07% vs. 10.01% for non-advised, showing a balanced amount among all the advised investments. As for ETF holdings, advised participants again had more balance among all the holdings, not having more than 4.31% of any one ETF, with Vanguard Total Stock Market being the top one.”

Related: Self-directed 401(k) participants take the long view, but need direction on scale of offerings

Meanwhile, the report underlined some key generational differences. For instance, Generation X comprises 46% of SDBA participants compared to Baby Boomers (27%) and millennials (21%). Gen X similarly had the most advised accounts (52%). By comparison, baby boomers were at 25% and millennials followed at 19%. On the other hand, baby boomers claimed the highest SDBA balances at an average of $531,201, higher – as expected – than both Gen X at $318,481 and millennials at $119,278. Millennials and Gen X had the higher percentage of mobile trades at 33%, and 26%, with boomers at 23%.

The SDBA Indicators Report is based on data from approximately 286,000 retirement plan participants with balances between $5,000 and $10 million in a Schwab Personal Choice Retirement Account.