Retirement plan participants who maintained self-directed brokerage accounts with Charles Schwab did well last year, but those who were assisted by a financial advisor had account balances almost twice that of those who were not.
During the fourth quarter of 2023, investors using Schwab’s Personal Choice Retirement Account to self-direct their 401(k), IRA and similar plans saw their investments rise an average of 10.8% year-over-year, from $280,099 to $310,400. Those accounts rose 7.9% in the fourth quarter alone, according to the Schwab Self-Directed Brokerage Account Indicators quarterly report.
Total PCRA assets as of Dec. 31 were approximately $86 billion, including PCRAs offered through Schwab Retirement Plan Services and other 401(k) recordkeepers.
Advised Accounts Have Bigger Balances
There was a big difference in assets between Schwab PCRA account holders who relied on an independent advisor versus those who made investment decisions on their own. The average balance for advised accounts was $502,424, while non-advised accounts held $270,803.
Advised participants were in the minority among Schwab PCRA holders — only 17% of the total, compared with unadvised participants, who made up 82%.
There were sharp generational differences in the use of advisors for PCRAs. Gen X (age 43 to 58) had the highest percentage of advised accounts, 51.6%. Only 26% of Baby Boomers (age 59 and older) chose to use an advisor, as did 18.8% of Millennials (age 31 to 42).
Baby boomers ended the quarter with the largest average balance, $502,354, an increase of 7.74% from last quarter’s $466,246. Gen Xers had $296,812, and millennials had $109,298, with both groups also seeing gains.
On average, those with advised accounts made more trades — 12.8 total, compared with 9.1 for non-advised accounts.
As might be expected, advised accounts had a more diversified asset allocation mix and a lower concentration of assets in particular securities, and a lower percentage in cash. Cash comprised 3.26% of advised account balances, compared with 11.08% for non-advised accounts.
Aside from the differences between advised and unadvised accounts, the Schwab report provides a wealth of data on PCRAs in the fourth quarter.
Men accounted for 78.2% of participants, and women, 22.8%.
The average age of participants was 55. The division was baby boomers, 27.0%; Gen X, 45.2%; and millennials, 21.0%.
Participants on average held 11.8 positions and made 9.7 trades.
Equities Lead Investment Options
Most PCRA funds were in equities, 34.46%, up from 31.27% last year. Other investment classes included mutual funds, 28.43%; ETFs 22.82%; cash and equivalents, 8.91%; and fixed income, 5.38%.
The largest equity sector was information technology, 31.64%, up from 30.11% in the third quarter. Other leading sectors were consumer discretionary, 18.89%; financials, 10.90%; communication services, 7.94%; and healthcare, 7.13%.
The top stock holdings were:
- Apple, 11.99%
- Tesla, 7.76%
- Amazon, 4.84%
- Nvidia, 4.65%
- Microsoft, 3.88%
Among mutual funds — the second most popular asset class for Schwab PCRA investors — the asset allocations in the fourth quarter were: large cap stock funds; 33.02%; taxable bond funds, 15.06%; and money market funds,14.58%.
The top mutual funds were:
- Schwab S&P 500 Index (MUTF), 6.09%.
- Schwab Total Stock Market Index, 2.69%.
- Vanguard 500 Index Admiral, 2.09%.
- Vanguard Total Stock MKT IDX ADM, 1.93%.
- Schwab International Index, 0.89%.
- PFG American Funds Growth Strategy R, 0.87%.
- Pimco Income INSTL, 0.82%.
- Schwab US Aggregate Bond Index, 0.67%.
- Vanguard Dividend Growth Fund INV, 0.65%.
- Schwab Small Cap Index, 0.62%.
The leading ETF class in PCRA accounts continued to be U.S. equity ETFs at 52.58%, followed by U.S. fixed income at 14.12%, international equity at 12.51%, and sector ETFs at 9.96%.
The top 10 ETFs were:
- Vanguard Total Stock Market ETF, 5.23%.
- Vanguard S&P 500 ETF, 4.53%.
- SPDR S&P 500 ETF, 4.36%.
- INVSC QQQ Trust SRS 1 ETF IV, 4.21%.
- iShares Core S&P 500 ETF, 2.75%.
- Schwab US Dividend Equity ETF, 1.70%.
- Schwab US Broad Market ETF, 1.47%.
- Vanguard FTSE Developed Markets ETF, 1.28%.
- Vanguard Total Bond Market ETF, 1.25%.
- Vanguard Growth ETF, 1.25%.
Roth account balances were much lower than other types of PCRAs: $81,247, compared with $326,838, and Roth account holders had fewer trades than others: 6.1 vs. 10. Gen X had the most Roth accounts as a percentage of accounts, 44.1%. Top equity holdings in Roth PCRA accounts were Tesla, Apple, Nvidia Corp., and Amazon.
Flowing Funds
Schwab also detailed net flows in and out of the various investment types, with fixed income getting the largest inflow, and equities and other seeing net outflows.
- Equities: -$12,746,398.
- ETFs: $838,281,088.
- Fixed Income: $1,755,437,640.
- Mutual Funds (OneSource): $646,105,264.
- Mutual Funds (other): $46,116,166.
- Mutual Funds (Transaction Fee): $1,333,560.
- Other: -$15,331,198.
Among equity sectors, investors moved the most money into healthcare and the most out of communication services:
- Communication Services: -$41,475,716.
- Consumer Discretionary: -$35,387,048.
- Consumer Staples: $24,299,289.
- Energy: -$7,068,790.
- Financials: -$345,196.
- Health Care: $52,778,902.
- Industrials: $1,381,080.
- Information Technology: -$38,280,522.
- Materials: -$2,666,201.
- Other: $25,712,397.
- Real Estate: $9,807,140.
- Utilities: $1,260,425.
Among mutual funds, PCRA account holders made the most transfers into money market funds and large cap stocks and pulled money out of hybrid funds, tax-free-bond funds and other.
- Hybrid Funds: -$2,955,454.
- International: $2,287,368.
- Large Capitalization Stock Funds: $119,997,785.
- Money Market Fund: $502,532,774.
- Other: -$9,719,524.
- Small Capitalization Stock Funds: $24,407,471.
- Specialized Funds: $16,793,597.
- Taxable Bond Funds: $43,644,049.
- Tax-Free Bond Funds: -$3,433,076.
