While most 401(k) investors simply put it and forget it when it comes to their retirement savings, there are some who take the extra step of choosing their own investments. They participate in a so-called self-directed brokerage account, which is part of an employer-sponsored plan. These brokerage windows offer a wider selection of employee mutual funds, as well as individual stocks. Not all plans offer the option, and even if they do, not many people join. For example, 21.5% of Fidelity’s 401(k) plans offer brokerage opportunities, but only 3.3% of those with access are investing in them. Schwab breaks down participation rates at around 5% to 10% into industry-wide windows. People who invest 401(k) money in the brokerage window are often older employees who earn slightly more than their peers, says Mike Shamrell, vice president of thought leadership at Fidelity. They are also described as more “sophisticated” participants, with higher-paid employees drawing the attention of services. Participants who earn more than $250,000 a year have a 10% participation rate in these brokerage windows, according to Fidelity. Many people also have a financial advisor who helps them manage their investments. Nathan Voris, director of investment, insights and advisory services at Schwab Retirement Plan Services, says about half of Generation X employees with Schwab Individual Choice Retirement Accounts also have a mentor. finance. “Another reason is people who are just a little bit more involved and want to take a little more ownership of their investments,” he said. The average balance in Schwab’s self-administered brokerage account was $283,485 in the second quarter, down 18.58% from a year ago and down 14.62% from the first quarter. However, that doesn’t necessarily represent the overall 401(k) account balance for savers, as participants can only put a portion of their contributions into the brokerage window. Trading volume was also lower at an average of 11.2 transactions per account compared with 13.7 in the first quarter. So where do people who are taking advantage of the window put their money to work? Fidelity and Vanguard don’t break it. However, individual stocks accounted for the largest share of Schwab’s account participants, with 33.23% of their assets in the second quarter. Mutual funds were the second largest holdings, at 28.77% and exchange-traded funds at 20.9%. Cash and equivalents at 15.18% and fixed income at 1.9%. Apple is the top stock holder. The top mutual fund holding is the Schwab S&P 500 Index Fund, followed by the Schwab Total Stock Market Index. The top two ETFs are the Vanguard Total Stock Market Index Fund and the SPDR S&P 500. Earning Profits There is a tendency for more and more employers to add brokerage windows to their plans. Fidelity has seen a roughly 5% increase in 401(k) and 403(b) services since 2017, Shamrell said. However, the participation rate has remained flat, at around 3%. Jania Stout, senior vice president of retirement and wealth at Atlanta-based OneDigital, has also seen increased interest from employers. Young workers, who have been involved in investments during the pandemic, have started asking for options in their plans, she said. “People seem to be a little more risk-averse and so they may want to invest in riskier assets, more international investment options, smaller cap, mid cap [stocks] compared to what you typically see in a 401(k) product line,” says Stout. In particular, she’s seen a lot of interest from employers in giving access to employer-integrated funds. environmental, social and governance issues and, at times, cryptocurrencies, Bonnie Treichel, Solutions Manager at Endeavor Retirement, By including them in self-directed brokerage accounts, employers can avoid them on their core menu and still provide investment for employees. There are less sophisticated participants using windows brokers now than ever before. “Good to know If you want to take advantage of the brokerage mechanism, the first thing you should do is check to see if your employer is offended. Shamrell of Fidelity says: rs is an option. It’s important to remember that the “We continue to encourage people to take that long-term approach and not see it as an active trading platform,” says Shamrell. what fees are involved and how much you want in the self-directed brokerage portion of your retirement plan Employers often add balustrades around the account, like a percentage limit on succession “Finally, seek advice from an expert before investing,” advises Stout. “I don’t recommend getting in on your own without some guidance or advice. from a financial professional, unless you take the time each week to study, research and model,” she says. such time or concentration.”