Surprising Economic Growth in 2023 Delivers Welcome Boost to 401(k) Accounts and Stock Market

NEW YORK, NY – After widespread predictions of recession last year, 2023 defied expectations with better-than-expected economic growth and falling inflation, the latest federal data shows.

Investors have been buoyed by growing optimism that the Federal Reserve will cut interest rates this year, leading to record highs in the stock market. The S&P 500 is up over 2% at the start of this year, after a 26% jump last year.

One of the most significant indicators of economic growth has been the growth in average 401(k) balances, which rose to $107,700 by the third quarter of 2023, marking an 11% increase from the previous year. This growth has encouraged many savers to sit back and relax as markets rose, rather than make changes to their allocations.

Net trading activity in 401(k) plans also saw a substantial decrease, falling to a rate of 0.82% last year from 1.27% in 2022, indicating a shift towards more long-term approaches to retirement savings.

Furthermore, the recent gains have prompted account holders to further invest in stocks, with an average of 70.5% of 401(k) portfolios comprising stocks by the end of the year, up from 68.2% at the start of 2023.

While the past year has seen strong economic growth and a resilient labor market, personal finance experts caution against making impulsive decisions based on short-term market fluctuations. Despite the positive trend, the stock market analysts are still cautious and foresee a softer year ahead.

Although the economic outlook appears positive, some analysts warn that recession risks have not evaporated, and there is potential for economic and stock market challenges in 2024. This includes concerns about the impact of the Federal Reserve’s rate hikes, resumed student loan payments, and rising credit card rates, which could all lead to an imminent slowdown in consumer spending.