Answer: Well, if you’re one of the 60 million Americans with a 401(k) plan, you are!
“85% of every dollar going into a 401(k) is going into a target date fund,” says Tier 1 Alpha Senior Executive Advisor Michael Green. “That’s pretty crazy when you stop and think about it because these didn’t exist until 2003."
The video above is part of a 60-minute primer on "Systematic Flows: How Mechanical Buying and Selling Drives Volatility And Trend In The Stock Market." Click here to watch the full video.
“We look at 401(k) flows to track the longer-term trend,” says Tier 1 Alpha CEO Craig Peterson. “What you find is that there is just north of $60 billion per month being injected into these 401(k) funds and a significant amount of that ends up in the equity market. It’s the link between employment levels and the stock market.”
When someone in their 20s gets their first job, even if they contribute 10% of their entire income (a higher level than most at that age), it still wouldn't amount to more than $5K coming into the market. On the flip side, someone in their mid-50s who's eligible for catch-up contributions could contribute more than $50K. This makes older workers with higher salaries (and therefore more money invested into markets via 401(k)s) much more impactful players.
"It speaks to one of my key fears because when recessions hit, it tends to be those 50+ year-olds who lose their jobs, never get them back and never fully recover in their contributions to 401(k)s," Green adds. "That's going to be a really interesting dynamic we haven't seen in this cycle yet. It's something I'm monitoring very closely."
Interested in learning more about Tier 1 Alpha research? Check out Tier 1 Alpha's Market Situation Report.
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