Investing August 31, 2021

SDBA Balances Increase in 2021

Most participant assets were held in equities, followed by mutual funds.

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According to Charles Schwab’s “SDBA Indicators Report,” a benchmark on retirement plan participant investment activity within self-directed brokerage accounts (SDBAs), the average account balance across all participant SDBAs finished the second quarter of 2021 at $348,183, a nearly 22% increase year-over-year and a 4.3% increase from the first quarter of the year.

The second quarter “SDBA Indicators Report” also showed that trading volumes were in line with a year ago, at an average of 14 trades per account, as it says participants encountered familiar COVID-19 volatility with the rise of the Delta variant. Despite some fears, Charles Schwab said participants saw account growth year-over-year as stocks continued to climb off the March 2020 low and consumer confidence surged back to pre-pandemic levels.

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The largest amount of participant assets were held in equities, at 37%. Mutual funds were the second largest holding at 30%, followed by exchange-traded funds (ETFs) (20%), cash (12%) and fixed income (1%).

The data also breaks down specific asset class and sector holdings within each investment category. Large-cap funds had the largest allocation, at approximately 34% of all mutual fund allocations, followed by taxable bonds (19%) and international funds (16%).

The largest equity sector holding was information technology (IT) at 29%. Apple was the top overall equity holding, comprising 10.26% of the equity allocation of portfolios. The other equity holdings in the top five were Tesla (6.28%), Amazon (5.03%), Microsoft (2.72%) and NVIDIA (1.84%).

Among ETFs, investors allocated the most money to U.S. equity (50%), followed by sector ETFs (15%), international equity (13%) and U.S. fixed income (13%).

The report also said advised accounts held higher average account balances compared with non-advised accounts at $550,127 versus $302,330.

Among generations, Generation X had the most advised accounts at 48%, followed by Baby Boomers (36%) and Millennials (13%). Gen X made up approximately 45% of SDBA participants, followed by Baby Boomers (32%) and Millennials (18%). Baby Boomers had the highest SDBA balances at an average of $532,338, followed by Gen X at $306,489 and Millennials at $103,777. All balances were up from Q1 2021.

Lastly, on average, participants held 12.3 positions in their SDBAs at the end of Q2 2021, up slightly from 10.5 last year and consistent with Q1 2021.

Data and Research August 31, 2021

Sponsors Can Help Participants Incorporate a Financial Timeline to Reduce Debt

Experts say analyzing finances and creating a plan will likely help workers with their personal debt.

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Many American workers are carrying thousands of dollars in debt, and most say it impacts their financial security.

A Northwestern Mutual study found that U.S. adults who carry debt hold an average of $23,325, excluding mortgages. Seventy-eight percent of respondents also believe this affects their ability to achieve financial confidence.

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Because of their debt, 29% of respondents said they delayed making “significant” purchases; 18% delayed saving for retirement; 14% delayed buying a home; 8% delayed having children and 7% delayed marriage.

The findings come as new research from the Insured Retirement Institute (IRI) says most workers nearing retirement in the next decade or two have inadequate savings and are not saving enough to catch up. Surveying 1,000 workers between 40 to 73 years old, the institute found that while three out of four workers are saving for retirement, savings rates are not high enough for even the youngest respondents to grow their nest eggs.

Additionally, only four in 10 workers have attempted to calculate how much they will need to save to meet retirement income expectations, the IRI says.

Instead, workers are focused on paying down their debt. But there is a silver lining: Even as the U.S. and the globe continue to grapple with the financial impacts of the COVID-19 pandemic, the Northwestern Mutual study found that personal debt has dropped more than 20% in the past two years. In 2019, the average amount of debt per year, excluding mortgages, was $29,800, and that decreased to $26,621 in 2020 before hitting $23,325 in 2021.

This drop from the past two years could be attributed to pandemic relief efforts, such as the three stimulus checks released in 2020 and 2021, according to the National Bureau of Economic Research. As a result of the pandemic, 23% of respondents expect to pay their debt off sooner, yet 34% say it will take them longer than anticipated to settle their debt.

Organizing a timeline can help those who are struggling pay down debt, Northwestern Mutual says in its study. According to the report, 66% of those with some debt say they have a specific plan to pay it off. Of those with a plan, 45% say they expect to be in debt for one to five years; 20% say for the next six to 10 years; 14% say between 11 to 20 years; and 9% say for the rest of their lives.

In fact, most experts encourage people who are dealing with debt to create a plan—whether that means they set up an emergency savings account or a budget—to organize and determine debt.

“First, you really want [participants] to create a budget or spending plan,” Samuel Moroni, a senior wealth strategy associate for UBS Financial Services, said during a panel at the 2021 virtual PLANSPONSOR National Conference (PSNC) in June. “This will help them achieve their financial goals by giving them a road map and prepare them for those emergency savings and other roadblocks.”

Plan sponsors and participants should establish a proper savings and spending plan, he added. Plan sponsors should ask participants what their financial priorities are, and then establish benefits that can help in achieving those financial goals, such as health savings account (HSAs), debt management education and automatic features, Moroni said.

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