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How Much Did 401(k)s Gain in 2023?

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2023 Insights into Retirement Investments

As we approach the final weeks of 2023, a promising outlook looms for the S&P 500, bringing optimism to workers saving for retirement through their employer-sponsored 401(k) plans. Federal Reserve Chairman Jerome Powell's mid-December signal of potential interest rate cuts in 2024 further fueled a year-end rally that kicked off in November.

While the S&P 500 is a key player, most 401(k) portfolios encompass diverse asset classes, from bonds to international and small-cap stocks. Here's a comprehensive overview of the performance of these retirement accounts in 2023.

401(k) Account Balances in 2023: Key Highlights

  • In the third quarter of 2023, the average 401(k) balance declined to $107,700 from $112,400 in the previous quarter, based on November data from Fidelity.
  • Despite the recent dip, this average balance marked a substantial increase from the year-earlier quarter, reflecting the market's rally in the initial seven months of 2023.
  • Reports from Fidelity, Vanguard, and Bank of America noted a growing trend of retirement savers resorting to hardship withdrawals, possibly influenced by various factors such as housing needs, medical emergencies, or natural disasters.
  • Bank of America's 2023 Participant Pulse report revealed an uptick in Americans borrowing from their 401(k)s, signaling a dual narrative of balance growth and increased plan withdrawals.

Best-Performing Asset Classes in 2023: A Snapshot

  • According to BlackRock, notable performances in 2023 include:
    • U.S. equities: 21.4%
    • Japan equities: 15.7%
    • Europe equities: 14.9%
    • High-yield bonds: 9.6%
    • Emerging market equities: 6.1%
  • With a tilt toward stocks being common for 401(k) contributors, the positive trend in stocks likely contributed to increased portfolio values.

Worst-Performing Asset Classes in 2023: A Closer Look

  • BlackRock identified the following as the five worst-performing asset classes in 2023:
    • China equities: -8.8%
    • Developed market government bonds: -0.1%
    • Real estate investment trusts: 1.7%
    • Infrastructure equities: 2.4%
    • Commodities: 3.3%
  • While some classes faced challenges, diversification remains a crucial risk-mitigating strategy.

401(k) Savings Rate in 2023: A Consistent Trend

  • Empower's study highlighted that savings rates have hovered around 8% since at least 2021.
  • Two-thirds of savers surveyed by Empower expressed no plans to sell assets or reduce retirement savings account contributions.
  • Baby boomers led in savings rates, averaging 74% higher rates than Generation Z savers, with a notable propensity to leverage employer matches.

As Americans continue navigating economic waves, the 401(k) remains a valuable tool, emphasizing the importance of informed participation and long-term commitment to retirement saving.

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