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Investment Thrills & Chills – Volatility

04/16/2019
By Jack Towarnicky

The S&P 500 swung at least 2 percent on more than half of the trading days during the fourth quarter of 2018 – the most in any three-month period since 2011. “When things move a little bit up or down every day, that’s good,” Morgan Stanley’s Chief Financial Officer Jon Pruzan said in an interview. “When they go up 600 points one day and down 600 points the next, that’s bad.”1

Join Philipp Meyer-Brauns, Ph.D., senior researcher at Dimensional Fund Advisors as he provides insight regarding “Retirement Investing at the Summit” at PSCA’s 2019 National Conference, April 30-May 1 in Tampa, FL

One precious memory from my childhood was the Cleveland Firefighters’ picnic. Every other summer we got to visit Cedar Point, an amusement park in northwest Ohio. My older brother Joe and I raced through the park from dawn to dusk: rides like Dodge-em and Turnpike cars. But the best was the shooting arcade – we got to shoot at targets with .22 rifles.

Roller coaster, anyone?

One ride we never went on was the roller coaster (I had a bad case of ‘Coasterphobia.’2) Today, if you go to Cedar Point, the biggest, baddest roller coaster in the park is called Valravn.3

Individual account, retirement savings plan investors, had their own wild ride in the fourth quarter of 2018.

They say that overcoming ‘Coasterphobia’ requires mental preparation so you can sit back, relax, take it all in, and enjoy.4 It seems that most retirement savings plan participants have learned that lesson.

Alight Solutions 401(k) Index confirmed participants were very active in 2018, with 46 days of above-normal transfer activity (compared to 13 days in 2017).5 Unfortunately, too many retirement investors chased the market:

  • Investors had above-normal trading activity in each of the first seven trading days in 2018 and in 18 of the first 28 trading days – with nearly universal movement from fixed income investments to equity funds. 
  • In December, when Wall Street plummeted, there was a seven-day stretch when the Dow dropped by at least 350 points six different times, and every day was an above-normal day of trading as money flowed from equities to fixed income. 

Buy as the market rises, sell as the market declines. Sound like a plan to you?

Thankfully, Alight estimates that net trades in 2018 amounted to only 1.42 percent of assets – so, 2018 was a record low year for trading activity in the more than 20-year history of the 401(k) Index. After reflecting contributions, trades, and market activity, 401(k) investors ended 2018 with 66.6 percent in equities, down from 68.6% at the beginning of the year.

Anxious? Philipp will offer you valuable insight at PSCA's 2019 National Conference.6 But, don’t wait for surprises – check your asset allocation and confirm your actions match your risk tolerance.7


1Liz Hoffman, Traders Wished for Volatility. The Fourth Quarter Wasn’t What They Had in Mind. Despite big price swings in stocks and other assets, trading revenue was down 6% among the five largest banks. WSJ, 1/17/19, Accessed 4/13/19 at: https://www.wsj.com/articles/traders-wished-for-volatility-the-fourth-quarter-wasnt-what-they-had-in-mind-11547770395
2E. Minton, Thrills & Chills, Coasterphobia Stress Management Program, Psychology today, 5/1/99, Accessed 4/13/19 at: https://www.psychologytoday.com/us/articles/199905/thrills-chills
3Valravn – Official POV, Cedar Point, Ohio. Accessed 4/13/19 at https://www.youtube.com/watch?v=6EjSl_FKDBY&app=desktop
4Ibid, Note ii.
5Alight Solutions, Accessed 4/13/19 at: https://ideas.alight.com/wealth/alight-solutions-401-k-index-2018-observations
6J. Towarnicky, Retirement Investing At The Summit – Investing When Equity Markets Are At All Time Highs, 11/30/18, Accessed 4/13/19 at: https://www.psca.org/blog_jack_2018_54
7J. Towarnicky, Misbehaving Savings – Part 1 of 5, 1/17/19, Accessed 4/13/19 at: https://www.psca.org/blog_jack_2019_3

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