Self-Directed 401(k) Investors Finish 2019 Strong With Average Account Balances up 19% Year-Over-Yea

johnN

https://finance.yahoo.com/news/schwab-report-self-directed-401-140000346.html

Schwab Report: Self-Directed 401(k) Investors Finish 2019 Strong With Average Account Balances up 19% Year-Over-Year


According to Charles Schwab’s SDBA Indicators Report, an industry-leading benchmark on retirement plan participant investment activity within self-directed brokerage accounts (SDBAs), the average account balance across all participant accounts finished 2019 at $294,105, a 19% increase year-over-year and a 6% increase from Q3 2019.

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Don't be too impressed by these DIY investors. According to the Employee Benefit Research Institute (EBRI):

for 2019 as a whole – well, in a year that the S&P 500 rose more than 28%, and the Dow gained 22% (the NASDAQ was up an even better 35%), the average 401(k) balance – buttressed not only by the markets, but by contributions – ended the year 44.9% higher for those workers aged 25-34 with less than 4 years of tenure, while workers with more than 20 years of tenure, aged 55-64, registered a 24.6% increase.

The EBRI figures include 26 million participants working with all sorts of plan custodians, while Schwab's report covers just 142K participants using Schwab's services.

As noted in the quoted paragraph, increases in account values include not only growth but contributions. So the "younger" the account, the greater the impact of a year's worth of contributions. This makes comparisons difficult without more details. Still, even older 401(k) investors did better on average than the Schwab DIY customers.

A word about terminology: "self-directed" means something different when applied to 401(k)s and to IRAs. In the context of 401(k)s, it just means a brokerage window - the ability of participants to invest through a company-designated brokerage. Thus investments are not limited to the 401(k)s menu of options, typically mutual funds, ETFs, stable value funds, and company stock. But they are still limited to what one can buy in a "vanilla" brokerage.

That's simply what one would expect with an "ordinary" IRA. In contrast, a self-directed IRA enables one to invest in virtually anything the IRS allows, including real estate, gold coins, etc. However it is a more complex vehicle. Very different from a 401(k) brokerage window.