Americans’ Accelerated 401(k) Withdrawals Could Be Ominous for Passive Funds

CNN Business recently reported that more Americans are withdrawing money from their 401(k) accounts because they are in financial trouble.

According to Bank of America data comprising more than 4 million 401(k) holders, 15,950 people made withdrawals from their retirement accounts in the second quarter of 2023. This was an increase of 36% from the same quarter in the prior year.

This is a troubling developing coming at a time when the unemployment rate is near a historic low and the labor market appears strong. If the economy falls into recession, as many observers have been predicting, these withdrawals could accelerate. As discussed by Michael Green in many of his interviews, passive funds suffering outflows would be a major market event, because the large indexing providers have almost never had to place sell orders in the stock market.

Michael Kao, former Goldman Sachs commodities trader and portfolio manager at Akanthos Capital Management highlighted the possibility of withdrawals putting pressure on passive investing.

Read the article on CNN Business here.

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