401(k) investors move to cash, bonds in September

Investors Shift 401(k) Funds to Cash and Bonds, Signaling Cautious Market Outlook

Imagine if you were packing for a trip and suddenly switched out your summer clothes for winter jackets, even though the weather was still warm. That’s kind of what happened with investors and their 401(k)s in September—they moved their money from stocks (which can be risky but rewarding) to safer places like bonds and cash, even as the stock market was doing well.

What’s Happening with 401(k)s?

In September, most people didn’t move their 401(k) money around too much. But when they did make changes, they took money out of stocks and put it into bonds, stable value funds, and money market funds. These are like the “safe” lockers for your money compared to the rollercoaster ride of stocks.

Alight, a company that helps manage retirement plans, looked at over 2 million people’s 401(k) accounts and saw this trend. In fact, on 20 out of 21 trading days, more money went into bonds and cash than into stocks.

Why Are Investors Doing This?

  • Worries About the Economy: Some people might have been nervous about news like a possible government shutdown or a weaker job market. When things feel shaky, moving money to safer places can feel comforting.
  • Market Volatility: Investors might be trying to protect themselves if they think stocks could drop.
  • Rebalancing: When stocks do well, they can take up more of your portfolio than you planned. Some investors might just be moving money to keep their mix of investments balanced.

Pros: Why Moving to Bonds and Cash Might Be Smart

  • Less Risk: Bonds and stable value funds usually don’t swing up and down as much as stocks.
  • Steady Income: Bonds can pay regular interest, which is helpful for people close to retirement.
  • Safe Harbor: During uncertain times, parking money in cash or stable funds can help you sleep better at night.
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Cons: Why This Could Be a Mistake

  • Missing Out: If the stock market keeps going up, people who switched out might miss gains. For example, the S&P 500 has gone up about 13% in 2025 so far (source).
  • Timing Trouble: Trying to guess when to get in or out of stocks rarely works well. Studies show most people who try end up worse off (Dalbar 2023 study).
  • Lower Returns: Over long periods, stocks usually earn more than bonds or cash. Moving out too soon can hurt your nest egg.

What History Shows

Historically, after big shifts to safer investments, the stock market often bounces back. For instance, after the 2008 financial crisis, many people moved to bonds, but stocks recovered strongly in the following years. Those who stayed invested in stocks typically saw bigger gains over time.

Investor Takeaway

  • Stick to Your Plan: Don’t let short-term worries drive your long-term investment decisions.
  • Review Your Mix: Make sure your stocks, bonds, and cash are balanced for your age and goals. Rebalancing once or twice a year is usually enough.
  • Avoid Market Timing: Remember, even experts rarely guess the market right. Focus on the bigger picture.
  • Watch the Data: If you’re close to retirement, it’s smart to reduce risk, but don’t overdo it and miss out on growth.
  • Ask for Help: If you’re unsure, talk to a financial advisor who can help you make a plan you’ll stick with.

For the full original report, see CNBC

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